37 Bogus Arguments About Housing
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37 Bogus Arguments About Housing

By Patrick following x   2015 Jul 11, 1:24pm 124,933 views   112 comments   watch   sfw   quote     share    

  1. Houses always increase in value in the long run.
    FALSE. Price is what you pay and value is what you get. The value of a house is constant. It just sits there. You get shelter, but you have to pay property tax and maintenance and the loss of alternative uses of capital. A house is a dead asset. The price of a house rises with salary inflation, but house prices cannot increase more than incomes in the long run. This is obvious if you think about it. If house prices go up more than people can afford to pay, buying stops, like it has stopped now.

    For example, prices in the Netherlands are about the same as they were 350 years ago, in terms of how many years of work it takes to buy a house. Warren Buffett and Charles Schwab have both pointed out that houses don't increase in intrinsic value. Unless there's a bubble or a crash, house prices simply reflect current salaries and interest rates. Consider a 100 year old house. Its value in sheltering you is exactly the same as it was 100 years ago. It did not increase in value at all. It did not spontaneously get bigger, or renovate itself. Quite the opposite - the house drained cash from its owners for 100 years of maintenance, taxes, and insurance - costs that never go away. The price of the house went up about as much as salaries went up, which is about the same as the number of dollars printed by the Federal Reserve went up.

    My grandmother always used to complain about the cost of milk. "Why, when I was a girl, a gallon of milk cost a dime! Just look at how much people are overcharging for milk now." I asked her how much people got paid back then. "Oh, about $15 a week", came the reply. Hmmm, sounds very much like the reasoning people use now when they talk about how much their father's house appreciated "in the long run" without considering that inflation and salaries rose a proportional amount as the Fed debased our currency.

    I don't see any salary inflation in our future for years to come, and that's the only kind of inflation that boosts house prices. Inflation in everything else (food, energy, medical) just takes away from the money people have to spend on housing.

  2. As a renter, you have no opportunity to build equity.
    FALSE. Equity is just money. Renters are actually in a better position to build equity through investing in anything but housing. Renters can get rich much faster than owners, just by saving the money that owners are wasting on mortgages, taxes, and maintenance. Renters are getting paid to wait, both by the monthly savings and by watching the value of their savings increase relative to housing.

    • Owers are losing every month by paying much more in interest than they would pay in rent. The income deduction does not come close to making owing competitive with renting.
    • Owers are losing principal in a leveraged way as prices decline. A 14% decline completely wipes out all the equity of "owners" who actually own only 20% of their house. Remember that the agents will take 6% if they possibly can.
    • Owers must pay taxes simply to own a house. That is not true of stocks, bonds, or any other asset that can build equity. Only houses are such a guaranteed drain on cash.
    • Owers must insure a house, but not most other investments.
    • Owers must pay to repair a house, but not a stock or a bond.

  3. Renting is just throwing money away.
    FALSE, renting is now much cheaper per month than owning the same thing. If you don't rent, you either:

    • Have a mortgage, in which case you are throwing away money on interest, tax, insurance, and maintenance.
    • Own outright, in which case you are throwing away the extra income you could get by converting your house to cash, investing in bonds, and renting a similar place to live for much less money. This extra income could be 50% to 200% beyond rent costs forever, and for many is enough to retire right now.

    Either way, owners lose much more money every month than renters. Currently, yearly rents in the San Francisco Bay Area are about 3% of the cost of buying an equivalent house. This means a house is returning about 3% rent minus taxes and maintenance, bringing the landlord's return down to 0%.

    Landlords are loaning a house to their tenants at a 3% interest rate, called rent. This is a fantastic deal for renters. When it is possible to borrow a million dollar house for 3% yearly rent at the same time a loan of a million dollars in cash costs 6.5% interest, plus 1.3% property tax, plus 1% maintenance, something is clearly broken. Renters are enjoying an extreme discount at the owner's expense.

    If someone tells you that you are throwing money away, you can reply "The landlord is giving me a huge gift. He's subsidizing me to live in his rental. I'll take free money any day."

    If someone tells you that you are "Not building equity", you can reply you are not LOSING equity, which happened to millions of people, and is still going on right now.

    To add insult to "owners", their property is declining in value. Renters are completely protected from the massive losses owners are experiencing. Here's a great quote from NPR:

    Underwater owner: "We would do it [pay the mortgage] if the equity was there, but in a case where we're already so behind... Imagine that for five years, say, we're gonna pay four grand a month and then we're just gonna be back up at what we bought the house for. We feel like we're throwing away money."

  4. There are great tax advantages to owning.
    PARTIALLY TRUE. It's true for high-income couples with expensive houses and big mortgages, but not for modest-income couples in modest houses, especially if there is no mortgage.

    Every married couple filing jointly automatically gets to subtract an $11,400 deduction ($5,700 for singles) from their adjusted gross income to arrive at their taxable income. Alternately, you may add up modest deductions in seven categories: Medical, Taxes, Interest, Charity, Casualty and Theft, Job Expenses, and Other Misc. If the total of your expenses in these categories exceeds the standard deduction, you can itemize them on Schedule A of your tax return to reduce your taxable income.

    Let's assume that your only deductible expenses fall into the Taxes and Interest categories. Taxes mainly include the income tax you pay to the state (or its sales tax) and the property taxes on your home or other non-investment real estate. In a high-tax state like New Jersey, you might easily pay $7,200 in property taxes and $200 in income taxes, for a total of $7,400. So the first $4,000 of interest expenses just brings your deductions up to the standard $11,400, without reducing your taxable income.

    For a high-income couple, let's assume they can itemize their state income tax of $3,400, contributions of $1,000, and medical expenses of $1,000. These deductions use up $5,400 of the $11,400 standard deduction. So the first $6,000 of property taxes and interest save them nothing. After that, their savings depend on their tax bracket, which could be as high as 35 percent.

    For couples with modest incomes and mortgages, the first $11,400 of taxes and interest save them nothing.

    Evaluate your situation before making a buy-rent decision based on potential income-tax savings. Be sure to consider the deduction limit imposed by the AMT, too. Interest is paid in real dollars that buyers suffered to earn. That money is really entirely gone, even if the buyer didn't pay income tax on those dollars before spending them on mortgage interest. You don't get rich spending a dollar to save 30 cents!

    Buyers do not get interest back at tax time. If a buyer gets an income tax refund, that's just because he overpaid his taxes, giving the government an interest-free loan. The rest of us are grateful.

    If you don't own a house but want to live in one, your choice is to rent a house or rent money to buy a house. To rent money is to take out a loan. A mortgage is a money-rental agreement. House renters take no risk at all, but money-renting owners take on the huge risk of falling house prices, as well as all the costs of repairs, insurance, property taxes, etc.

    Even if you pay outright, you're still renting the house to yourself, losing alternative uses of that money, and taking the risk of falling house prices.

    Compare the cost of owning to renting.

  5. All real estate is local, so you cannot say anything about the national market.
    FALSE. Lending is global. All loans are harder to get. This will push prices down everywhere.

  6. OK, owning is a loss in monthly cash flow, but appreciation will make up for it.
    FALSE. Appreciation is negative. Prices are going down, which just adds insult to the monthly injury of crushing mortgage payments.

  7. As soon as prices drop a little, the number of buyers on the sidelines willing to jump back in increases.
    FALSE. There are very few buyers left, and those who do want to buy will be limited by increasing difficulty of borrowing.

    No one has to buy, but there will be more and more people who have no choice but to sell as their payments rise. That will keep driving prices downward for a long time.

  8. House prices don't fall to zero like stock prices, so it's safer to invest in real estate.

    FALSE. It's true that house prices do not fall to zero (except in Detroit), but your equity in a house can easily fall to zero, and then way past zero into the red. Even a fall of only 4% completely wipes out everyone who has only 10% equity in their house because agents will take 6% if they can trap the seller with a contract. This means that house price crashes are actually worse than stock crashes. Most people have most of their money in their house, and that money is highly leveraged.

  9. The bubble prices were driven by supply and demand.
    FALSE. Prices were driven by low interest rates and risky loans. Supply is up, and the average family income fell 2.3% from 2001 to 2004, so prices are violating the most basic assumptions about supply and demand.

    The www.census.gov site has data for Santa Clara County for the years 2000-2003 which shows that the number of housing units went up at the same time that the population decreased:

    year units people

    • 2000 580868 / 1686474 = 0.344 housing units per person
    • 2001 587013 / 1692299 = 0.346
    • 2002 592494 / 1677426 = 0.353
    • 2003 596526 / 1678421 = 0.355

    So housing supply in Santa Clara County increased 3% per person during those years. There is an oversupply compared to a few years before, when prices were lower.

    At a national level, there is a similar story in the years 2000 to 2005:

    • 2000 115.9M / 281M = 0.412 housing units per person
    • 2005 124.6M / 295M = 0.422

    At a national level, there is 2.4% more housing per person now than in 2000. So national prices should have fallen as well.

    A for-sale sign in a yard instantly increases the supply of houses on the market. There is no need to wait for builders.

    The truth is that prices can rise or fall without any change in supply or demand. The bubble was a mania of cheap and easy credit. Now the mania is over.

  10. They aren't making any more land.
    TRUE, but sales volume has fallen 40% in the last year alone. It seems they aren't making any more buyers, either.

    Japan has a severe land shortage, but that hasn't stopped prices from falling for 15 years straight. Prices in Japan are now at the same level they were 23 years ago. If we really had a housing shortage, there would not be so many vacant houses.

  11. Your calculator says the house I'm interested in is worth far less than the asking price. That's not very helpful in coming up with an offer. FALSE. It's very helpful to be able to document that you could be paying much less to live in the same location and same quality house, just by renting. It's a great negotating point.

  12. It is hard to find a rental that is the equivalent of this home. PARTIALLY TRUE. Sometimes there just is no equivalent rental available in the same area. Placing an ad saying you're looking for a rental in that area in a certain rent range is often enough to bring new rentals out of the woodwork though.

  13. Attractive areas will not follow strict economic laws of their worth. If I keep bidding what a home is strictly worth, I will always lose to someone who simply wants to live there, even if their money could be better invested elsewhere. FALSE. You can't lose by winning. Renting the same quality house in the same area for much less money every month than an owner pays is winning. Maybe others get the intangible feeling of ownership, but you get the cash that they are losing.

  14. If you don't own, you'll live in a dump in a bad neighborhood.
    FALSE. For the any given monthly payment, you can rent a much better house than you can buy. Renters live better, not worse. There are downsides to renting, such as being told to move at the end of your lease, or having your rent raised, but since there are thousands of vacant rentals, you can take your pick and be quite happy renting during the crash. There are similar but worse problems for owners anyway, such as being fired and losing your house, or having your interest rate and property taxes adjust upward. Remember, property taxes are forever.

    Some people want the mobility that renting affords. Renters can usually get out of a lease and move anywhere they want within one month, with no real estate commission. On the other side, if you can get a long-term lease, you will probably find it worthwhile to repair the place to your taste. The average time of owning a house is only seven years anyway.

    It is cheaper to rent a house in a good school district than to buy a house in the same place. In fact, children benefit in several significant ways from living in a rental. Aside from having a choice of school district, kids in a rental benefit from better parks in nicer neighborhoods, more living space, and less stress in their parents' voice -- all because it is still so much cheaper to rent than to own in bubble areas.

    A fun trick to rent a good house cheap: go to an open house, take the agent aside, and ask if the owner is interested in renting the place out. Often, desperate sellers will be happy to get a little rental cash coming in and give you a great deal. Sometimes they will rent to you for free ($0) as long as you keep the place up and pay the utilities.

    The biggest upside is hardly ever mentioned: renters can choose a short commute by living very close to work or to the train line. An extra two hours every day of free time not wasted commuting is the best bonus you can ever get.

  15. Owners can change their houses to suit their tastes.
    FALSE. Even single family detached housing is often restricted by CC&Rs and House Owner's Associations (HOAs). Imagine having to get the approval of some picky neighbor on the "Architectural Review Board" every time you want to change the color of your trim. Yet that's how most houses are sold these days.

    In California, the HOA can and will foreclose on your house without a judicial hearing. They can fine you $100/day for leaving your garage door open, and then take your house away if you refuse to pay. There's a good HOA blog here.

  16. The house down the street sold for 25% over asking, and that proves the market is still hot.

    agents have been known to create the false impression of a hot market by deliberately "underpricing" a house, especially in California. I personally have seen this happen repeatedly. Say a seller's agent knows that house will probably go for $400,000. He places ads asking $300,000 instead, a price lower than the buyer would accept. (Bait-and-switch is illegal when selling toasters, but apparently not when selling houses.) The goal is to first of all prevent buyers from knowing what a realistic price is, and secondly to get buyers to blindly bid against each other. There are four players in this game and three of them are against the buyer -- the seller, the seller's agent and the buyer's agent. Yes, the buyer's own agent works against the buyer, because there is no commission if there is no sale. There's a saying in Las Vegas: "There's a patsy in every game, and if you don't know who the patsy is, you're it."

    If you want to prove your agent is not on your side, ask to see houses "for sale by owner" or houses listed by discount brokers. If the agent cannot make a commission, you will not be told about the house.

    There is a way around the conflict of interest inherent in being a buyer's agent:

    let the seller's agent be your agent too, just for that one house he's trying to sell. Then the seller's agent has a big motive to lower the price, because he will get double the commission if you buy it rather than some buyer with his own agent.

    Note that you are free to bid far lower than the asking price. You might be pleasantly surprised to find out how desperate the sellers are. Another good reason to start low: you can easily raise your offer, but it's awkward to lower it. A suggestion from a reader: have all your friends bid extremely low for the house before you, then your own low bid will seem more reasonable.

    Another suggestion for dealing with underpricing:

    Get over it, and just beat them at their own game: Beat out all other bidders by bidding unrealistically high, and just be sure to have your offer contingent upon financing & house inspection. Since the bank won't finance you above the appraised value, you're then in a very strong position to re-negotiate the price far lower during escrow. The other bidders will be long gone.

  17. I was lucky that my agent told me to increase my bid by $50,000. Otherwise I would have lost, because my agent knew about a secret bid $40,000 above mine.
    FALSE. Your agent gets paid nothing if you don't buy the house, and he gets more if you waste more money by bidding too high. It is unwise to take at face value "secret" information that costs you money.

  18. The MLS proves things are great.

    The MLS (Multiple Listing Service, a private network of databases controlled by real estate agents) is a used-house sales tool designed to restrict access to critical market information to prevent the free market from working efficiently.

    All sorts of funny things happen in the MLS. For example, if a house just doesn't sell, that agents can remove its record in the MLS so that you cannot see that it failed to sell. Then the house comes back on the market at a lower price, and unsuspecting buyers think it's on the market for the first time. Their agent can "prove" it's a new listing by showing the MLS record to the buyer: "See, here's the listing date, just came on the market. Better hurry and buy it, this one is hot."

    There is no government agency checking that the MLS shows true transaction prices.

    Furthermore, the MLS will not list any house for sale by owner, and will resist listing property for sale through a discount broker, or bank-owned property, or extreme discounts from builders, or many other cases where you could save huge amounts of money. Those cheaper prices are often not in the system, because if you save money, they lose money. Even if some cheaper properties are listed, your agent is not likely to tell you about them if they require more work on his part, or get him a smaller commission.

  19. I'll just amortize the commissions and other transaction costs over 30 years and they'll be OK.
    FALSE. The average length of ownership is seven years, not thirty. That means the 7% or so that you'll pay in commission and closing fees comes out to about 1% per year, and that's actually a lot of money. You may think you're different and will actually stay put for 30 years, but statistically you're not, and you won't.
  20. Rich Chinese (or Europeans, or Arabs) are driving up housing prices.
    FALSE. The percentage of US houses bought by rich foreigners is tiny. Furthermore, American housing is clearly a bad investment at this point. Foreigners can just wait and watch American housing continue to fall, and then buy for much less in a few years. Rich foreign investors are not dumb enough to buy into a badly overpriced market, but your agent is hoping that you are.

    Patrick.net reader John H. points out that when the Chinese property bubble implodes, there will probably be sales of property in California and British Columbia to cover their losses at home.

  21. Local incomes justify the high prices.
    FALSE. Most bankers use a multiple of 3 as the maximum "safe" price-to-income ratio. We are well beyond the danger zone, into the twilight zone. The price to income ratio is still around 10 in the SF Bay Area.

  22. Prices were always way beyond equivalent rent in San Francisco (or whatever expensive town)
    FALSE. Price to rent ratios were normal in San Francisco and other the other expensive towns in 2000. That ratio more than doubled by 2005. See page 34 of John Talbott's excellent book called "Sell Now!"

  23. Higher-income people can afford to spend a larger portion of their income on a mortgage, so your 6% rule of thumb does not apply to them.
    FALSE. Even if you can spend more than 6% of the purchase price each year on a mortgage and other costs to own a house, that does not mean you should. In fact, gross rents are almost always less than 6% in richer neighborhoods, making it an even worse deal for the buyer in these places. The renter living in the same quality house next door loses far less money per month.

  24. You have to live somewhere.
    TRUE, but that doesn't mean you should waste your life savings on a bad investment. You can live in a better house for much less money by renting during the crash. A renter could save hundreds of thousands of dollars, not only by paying less every month, but by avoiding the devastating loss of his downpayment.

  25. Newspaper articles prove prices are not falling in my neighborhood.
    FALSE. The numbers in the papers are not complete and have murky origins. Those prices are "estimated" from the county transfer tax and making that tax public record is optional. A buyer who does not want you to see how little he paid has only to ask to put the transfer tax on the back of the deed and it will not show up on computer searches of the deed, which show only the front. Others voluntarily pay more tax than they have to, in order to inflate the apparent price to fool the next buyer. At a tax rate of about $1 per thousand of sale price, as in San Mateo county, you have to pay only $100 extra tax to make your purchase price look $100,000 higher.

    Even though you can in theory go to your county building and get sale price information, in reality the county will give it to you in a painfully slow and inconvenient way. For example, in Redwood City's county building there are PC's where you can look at data for any particular house, but you cannot print, you cannot save to a floppy disk, you cannot email data out. All you can do is write things down manually, one at a time. And that's how real estate interests like it. Your elected representatives are serving them, not you.

    Supposedly impartial sources like Dataquick are paid for entirely by people with a large financial interest in "proving" that prices are not falling. This makes it unwise to take their numbers at face value.

    For the obviously biased sources like real estate agents, you should assume that their sales price numbers do not include the effective price reductions from "incentives" like upgrades, vacations, cars, assumed mortgages and backroom cash rebates to buyers.

  26. My appraisal proves what my house is worth.
    FALSE. "An appraisal in its typical residential real estate form is little more than a comparative analysis conducted by someone with no skin in the game offering confirmation that other lemmings are paying too much for their houses as well." -from an article on morningstar.com

    Amazingly, government house price r=1">measures do not include houses with jumbo mortgages. This excludes well over half of all houses in California. So the government can report a slight price rise, but fail to mention that prices actually fell for the other 60% of houses in California.

  27. Foreclosures destroy neighborhoods, so we should stop foreclosures.
    FALSE. Empty houses destroy neighborhoods. Houses remain empty only because the prices are too high. "Anti-foreclosure" programs just keep prices too high, and keep houses empty. In areas where there are jobs, if prices were allowed to fall enough so that salaries can easily cover the cost of owning, people would move in and take care of the houses. In areas without jobs, the first priority should be jobs.

  28. It's not a house, it's a home.
    FALSE. It's a house. Wherever one lives is home, be it apartment, condo, or house. Calling a house a "home" is a manipulation of your emotions for profit. Don't let them push your buttons.

    A house is a wooden box that sits out in the rain and slowly rots. No one would buy in this market if they really thought about how much pain it's going to cause them in the long run. That's why they sell you a home, not a house.

  29. If you don't own, you're a failure.
    FALSE. Maximizing your savings and escaping the slavery of debt is success. Most people have a hard time understanding this, but they do understand cash. You could show them your bank statements to prove you're way ahead of the game as a renter, but then they would probably just ask you for a loan!

    The use of the status card is another well-known button that agents push to trick people into making foolish purchases. Don't let them do it.

  30. Property in the San Francisco Bay Area is a luxury good, and so will be less affected by economic downturns.
    FALSE. Most San Francisco Bay Area mortgages are ARMs, and ARM loans are not taken out by the rich. People on the border of bankruptcy take out ARMs because they can't afford fixed rate loans. The rich don't have loans at all.

    Many of these ARM loans have exceptionally deadly repayment terms, and so are known as "neutron mortgages". Like the neutron bomb, they destroy people, but leave buildings standing. They are also known as "suicide loans".

  31. House ownership is at a record high, proving things are affordable.
    FALSE. The percentage of their house that most Americans actually own is at a record low, not a high. We do have a record number of people who have title to a house because they have dangerous levels of mortgage debt, but that is no cause to celebrate.

  32. Rents could shoot up, making it a better deal to buy.
    FALSE. Rents are limited by the money people actually earn, not by how much they can borrow. Try walking into a bank and asking for a loan to pay your rent. For rents to shoot up, salaries would have to shoot up first. Salaries are not likely to rise at all given the current unemployment rate.

  33. You failed to factor in emotion. More houses are sold on emotion than will ever be sold based on perceived value. They buy all they can afford plus.
    FALSE. Buyer emotion doesn't matter at all to the lenders, not on the way up or on the way down. Most people will borrow as much as the possibly can. The limiting factor is lending, not emotion.

  34. It's unpatriotic to talk about mispriced houses. It might drive down prices.
    FALSE. Lower prices are better for America, especially for new families. Aren't lower food and energy prices better for America? Housing prices are the same: lower is better. Most Americans directly benefit by a decrease in house prices. Only the banks benefit from increased mortgage debt.

    If you own a house, lower prices have very little effect. If you want to sell and buy another house, higher prices mean you'll just have to pay more for the next house, while lower prices mean you will get a discount when you buy. If you want to buy a bigger house, you come out ahead with lower prices.

  35. My wife will divorce me if I don't buy a house.
    FALSE. She will divorce you if you do buy a house and go bankrupt trying to pay the mortgage. She won't divorce you if you rent a much nicer place than you can buy, and then take her to Paris for a month each spring, which you can do just by avoiding that suicidal mortgage.

    If she's religious, you could also point out Proverbs 22:7: "The rich rule over the poor, and the borrower is servant to the lender."

  36. My new baby needs a house.
    FALSE. If you're pregnant and desperately want to buy a house for your new child, that's a perfectly normal feeling called "nesting". It is also the leading avoidable cause of financial fatalities! You most definitely do not need a house for a baby. A baby is utterly unaware of whether it lives in a rental or not. Babies also don't need much space.

    Your baby will do better if you're not stressed out about a mortgage. You have five years before school quality becomes an issue, and at that point you can more easily move into the best school district as a renter than as an owner. Avoid debt and save your money so your child has a better start in life.

  37. I just want to own my own house.
    TRUE, most people do. There's nothing wrong with that. Buyers will get their chance when housing costs half as much and they have saved a fortune by renting. House ownership is great - unless you ruin your life paying for it. If you can save even just 10% on the price of a house, you can retire several years earlier than you would otherwise. If you can save 50%, then you can easily take a ten year vacation and still come out ahead. Great quote from http://healdsburgbubble.blogspot.com/: "People want to buy a house, they want to have someone tell them it is the smartest decision they are making in their lives, and they don't want to hear about any downside risk."

    Housing is the biggest expense in nearly everyone's life, far more expensive than food, gas, energy, even more expensive than education or medicine. To reduce the time you spend working to pay for housing is to increase the time you have for everything else.

    Cheap housing is good for us all! High housing costs take away from families' ability to save for retirement, fund their children's education, travel and lead a quality life.

    How can we make lower house prices our official government policy? How can we completely eliminate the mortgage interest deduction which drives up housing costs and discriminates against renters? How can we wipe out Fannie Mae, Freddie Mac, the FHA, and other agencies whose job it is to enslave Americans to mortgage debt?

    As reader Sean Olender put it: "Many people have forgotten that the number one restriction on their future freedom to do what they want, when they want, and to go where they want isn't the Iraqis, or Iranians, or North Koreans -- it's their mortgage lender."

What should you do?

First of all, both sides should avoid using agents, especially Realtors(R), who are corrupting our laws in Washington with lobbyists. Agents suck money out of the deal and monopolize the critical information of exactly how many bids there are and at what prices. Your own agent or the seller's agent may be bribed by another buyer to prevent your better offer from being presented to the seller, for example. Just find a property or buyer on your own, have the property inspected, and get a real estate lawyer to draw up or review the offer. If you make an offer, mail the offer to the seller yourself so that your agent or the seller's agent can't block it. If you are accepting or rejecting an offer, mail that information to the bidder yourself so that your agent or the bidder's agent can't -94112">block it. Agents have been known to block offers that don't give their own agency both sides of the commission.

Never sign any contract with any agent!

Agents try to trap you with a contract so that you cannot know for sure what is going on or make independent decisions. If you don't want to sell a house yourself or negotate a purchase, hire a lawyer or someone else by the hour to do the work for you. You're likely to save many thousands of dollars by avoiding commission fees.

Do not let any agent know your maximum price, or how much you are pre-approved for. Pre-approval is used by the agent to see how much more they can extract

from you.

To find out the lowest price an owner might accept, you could "happen" to wander by when the owner is outside and say: "I'd can't come near that price so I'm not interested, but just curious, what's your lowest price?"

If you own an expensive house, sell now so you can actually keep some of that funny money that appeared out of thin air. Otherwise, it will be painful to watch it vaporize back into thin air. Investors in mortgage-backed bonds subsidized the increase in the price of your house. Now they want their money back, and your challenge is to prevent them from getting it. The only way is to sell before your neighbors do. Time is not on your side.

If you can't sell without a loss, it's probably best to just walk away and free yourself from mortgage slavery. It depends on whether your loan was "recourse" or "non-recourse". In the latter case, the deal is simply that you can stop paying the loan and give back the house at any time. It's perfectly legal and moral according to the terms of the mortgage. Now that the government has temporarily stopped taxing forgiven debt, you can do it without owing anything! But talk to a lawyer and accountant first. If you refinanced, you may have given up your non-recourse status.

A long-term rental with a multiple-year lease is a good way to get stability with the economic benefits of renting. Many landlords are desperate, and you'll probably find them quite willing to negotiate a long term lease. Make sure they can't raise the rent much during the lease term, and make sure there is only a small penalty for ending the lease early. Even if you sign a normal 1-year lease, most landlords are happy to keep good tenants as long as possible.

If you want to buy, look around and see that house prices are falling. Why hurry to buy into a falling market? Time is on your side. Save your cash and buy for much less in the future. All your savings on the price of a house are tax-free earnings! For Californians: buy after the earthquake, not before.

Good advice from reader Stephen G. Bishop:

Signing a 30-year commitment is absurd. Can you guarantee your income will be uninterrupted for 30 years? It worked in the previous generation, when Dad worked at the same factory for 40 years and retired. Those days are gone. 80% of all mortgages are never kept to maturity. Triple the price of the property when you add interest for 30 years in. It's only worth it if the property doubles in value every ten years. Those days are gone.

Do not buy anything that wasn't built properly, no matter how cheap it gets. Many foreclosures are houses that weren't built properly, and these houses tend to be foreclosed over and over again. Lots of houses are ugly, but an ugly but well built house is often the best deal.

The way to win the game is to have cash on hand when others cannot get a loan. You do not want to be bidding your hard-earned savings against people who are bankrupting themselves with debt. It will be time to buy when lenders once again demand a 20% downpayment from everyone and get serious about checking ability to repay. You'll know prices are reasonable when it's cheaper to own than to rent the same thing. We're not there yet, not even close. Find a nice cheap rental, invest your savings every month, and enjoy the show till then.

Please tell friends about patrick.net, because people need to know the arguments against buying a house.

And a little comic relief (illustration courtesy of Rick LaForce, RickL@ci.union -city.ca.us)">RickL@ci.union -city.ca.us)

Annual income twenty pounds, annual expenditure nineteen six, result happiness.
Annual income twenty pounds, annual expenditure twenty pound ought and six, result misery.
--Charles Dickens, David Copperfield, 1849

To waste money is to waste that part of your life you spent earning that money, and wasting life is the worst thing you can do. --Dan8267

Saying it is "good" for housing prices to rise is saying that it is good for housing to take an increasing share of salaries each year, forever. There's a limit, and it is somewhat shy of 100%. --Bryce Nesbitt

If you need a mortgage, you can't afford it. --Stephen G. Bishop

From anonymous: The Mexican Dream is to escape from debt peonage. The American Dream is to get into debt peonage.

Lowering interest rates will help the housing and stock market for about as long as peeing your pants will help when you have to go. It will give a warm feeling for a minute.

Everybody hates house-agents because they have everybody at a disadvantage. All other callings have a certain amount of give and take; the house agent simply takes. -- H. G. Wells

Nick Naylor, in Thank You For Smoking: "99% of everything done in the world, good or bad, is done to pay a mortgage. Perhaps the world would be a better place if everyone rented."

From The Politics of Life by Craig Crawford: "Beware the boss who encourages you to buy a house or new car. Mortgages and car payments enslave you to the paycheck that your boss controls."

From Benjamin Graham, in The Intelligent Investor: "The outright ownership of real estate has long been considered as a sound long-term investment, carrying with it a goodly amount of protection against inflation. Unfortunately, real estate values are also subject to large fluctuations; serious errors can be made in location, price paid, etc.; there are pitfalls in salesmens' wiles."

Why do the buy side idiots ALWAYS fall for the FALSE CHOICE FALLACY????
Choice 1: Buy today, right now, this second.
Choice 2: Rent until you die.
Um, I will take door #3: let prices fall another couple hundred $K on a home like this, and buy it in a year or two. What did I win?
--Roberto Aribas

What the public believes, or can be induced to believe, no matter how wrong, is reality to politicians.

Subsidies simply increase prices by increasing demand. Subsidies benefit the first few recipients, but the sellers quickly catch on to the new source of revenue and increase prices to negate that benefit for all subsequent recipients. Ultimately, all subsidies flow directly to businesses as excess profit at public expense. This is true especially for housing and health care subsidies, and the businesses that benefit from these subsidies spend lavishly on lobbying and campaign contributions to make sure the subsidies continue, in the name of the "public good" even though subsidies are obviously a public harm. The true solution to shortages is to increase supply of houses, doctors, or whatever. But increased supply harms profits, so business interests squash all public talk of increasing supply.

Just as an unobserved tree falling in the forest makes no noise, a big beautiful home out in the lonely woods does little to increase status. The key to appreciating status is to have an audience -- and there is no bigger audience than that of our major cities and the playgrounds of their wealthiest residents. -- John Talbott

They hang the man and flog the woman Who steals the goose from off the Common;
But let the greater criminal loose Who steals the Common from under the goose

Interest never sleeps nor sickens nor dies it never goes to the hospital; it works on Sundays and holidays; it never takes a vacation; it never visits nor travels; it takes no pleasure; it is never laid off work nor discharged from employment; it never works on reduced hours. Once in debt, interest is your companion every minute of the day and night; you cannot shun it or slip away from it; you cannot dismiss it; it yields neither to entreaties, demands, or orders; and whenever you get in its way or cross its course or fail to meet its demands, it crushes you. -- J. Reuben Clark

It is better to get a poor interest rate than own a depreciating asset. -- Michael Surkan

I'll repeat that the best approach [to buying a car] is to use the Internet, have the car delivered and avoid going to dealerships altogether. -- Edmunds.com

Everyone in Western Europe, Japan, Canada, Australia, Singapore and New Zealand has a single-payer system. If they get sick, they can devote all their energies to getting well. If Americans get sick, they have to battle two things at once, the illness and the fear of financial ruin. ... And don't believe for a second that rot about America having the world's best medical care or the shortest waiting lists: I've been to hospitals in Australia, New Zealand, Europe, Singapore, and Thailand, and every one was better than the "good" hospital I used to go to back home. The waits were shorter, the facilities more comfortable, and the doctors just as good. --Lance Freeman at escapefromamerica.com

The first truth is that the liberty of a democracy is not safe if the people tolerate the growth of private power to a point where it becomes stronger than their democratic state itself. That, in its essence, is fascism -- ownership of government by an individual, by a group, or by any other controlling private power. ~ Franklin D. Roosevelt

From Our Lot by Alyssa Katz: "The secret, he was learning, was to trigger buyers' emotions, specifically women's emotions."

50 Ways To Leave Your Mortgage

You just slip out the back, Jack
Make a new plan, Stan
You dont need to be coy, Roy
Just get yourself free
Hop on the bus, Gus
You dont need to discuss much
Just drop off the key, Lee
And get yourself free

But, ah, think what you do when you run in debt; you give to another power over your liberty. If you cannot pay at the time, you will be ashamed to see your creditor; you will be in fear when you speak to him, you will make poor pitiful sneaking excuses, and by degrees come to lose your veracity, and sink into base downright lying; for, as Poor Richard says, the second vice is lying, the first is running in debt. -- Benjamin Franklin in Poor Richard's Almanac

I don't think I'll get married again. I'll just find a woman I don't like and give her a house. -- Lewis Grizzard

16 other offers? How can I know for sure that there is really even one other offer? So you're telling me that I should base the biggest financial decision of my life on the honesty and integrity of realtors?

Cashtration (n.): The act of buying a house, which renders the subject financially impotent for an indefinite period of time.

The End

The Housing Trap

You're being set up to spend your life paying off a debt you don't need to take on, for a house that costs far more than it should. The conspirators are all around you, smiling to lure you in, carefully choosing their words and watching your reactions as they push your buttons, anxiously waiting for the moment when you sign the papers that will trap you and guarantee their payoff. Don't be just another victim of the housing market. Use this book to defend your freedom and defeat their schemes. You can win the game, but first you have to learn how to play it.

115 pages, $12.50

Kindle version available

« First    « Previous     Comments 34 - 73 of 107     Next »     Last »

34   BayArea   ignore (0)   2016 Aug 9, 1:27pm   ↑ like (1)   ↓ dislike (0)     quote      

@Patrick, I'm curious how many copies of your book have you sold up to now, if you don't mind sharing?

I thoroughly enjoyed it and always recommend it to my first time home buyer friends so they can see both sides...

35   someone else   ignore (0)   2016 Aug 9, 2:08pm   ↑ like (3)   ↓ dislike (0)     quote      

BayArea says

I'm curious how many copies of your book have you sold up to now, if you don't mind sharing?

708 copies, for a total royalty payment of $3,671.88.

That's $5.19 royalty per copy.

36   BayArea   ignore (0)   2016 Aug 9, 2:11pm   ↑ like (1)   ↓ dislike (0)     quote      

Here is the thing...

Patrick's book is excellent at showing the less glamorous side of real estate... a side that a real estate agent, a friend, or co-worker probably won't know or tell you. With all the pressures to buy, it's good that someone wrote the only book I know of its kind that levels the playing field a bit.

Now if I recall, our author lives in Menlo Park? and wrote the book sometime in 2012. If he bought during that time, he would have been writing a very different book today in 2016.

37   BayArea   ignore (0)   2016 Aug 9, 2:19pm   ↑ like (1)   ↓ dislike (0)     quote      

Patrick says

708 copies, for a total royalty payment of $3,671.88.

That's $5.19 royalty per copy.

Thanks for sharing Patrick. And I'll continue to recommend the book to people and hopefully help boost that 708.

38   someone else   ignore (0)   2016 Aug 9, 2:33pm   ↑ like (1)   ↓ dislike (0)     quote      

The Original Bankster says

the simple fact is women demand a mortgage because that is typically the primary asset they get in the case of a divorce. It literally forces the husband to work hard to make those monthly payments, all which go into equity which she then gets in the divorce 10 years later. that is the common structure of a divorce for middle class whites. It's practically routine these days.

a woman who demands you get a huge house with a mortgage likely already has a divorce planned.

I don't think most women are actually consciously calculating that. I do think that women have some "nesting" set of neurons that men don't have, and this compels them to hunt for a safe comfortable house to raise their children. Unfortunately, women do now have a huge financial incentive for divorce and men routinely get screwed whether they own a house or not. She will get the assets whether they are in real estate, stock, or whatever, and she has zero obligations: no obligation to work, no obligation to have sex or have children, no obligation to remain faithful, definitely no obligation to remain married. If she cheats and has a child that is not his, he is also obligated to support that child of another man. Why would a man accept such a deal where he is legally obligated to give up more than half of his earnings in exchange for no legal obligation at all on her part? This is why marriage rates are falling.

the abolition of fault, not only as a prerequisite for divorce but
also as a consideration in determining divorce awards, ushered
in a revolution in divorce jurisprudence. Divorce awards under
the old system served as a selective form of specific performance
dependent on the inviolability of marital obligations. Modem
awards, justified by need or lost career opportunities, deny the
existence of an obligation to remain married.


I'd say that even more important than women wanting a safe comfortable place to raise children is the motive of employers to keep their employees in debt. A person in debt is a person who cannot easily quit his job and must instead obey orders.

And the goal of all employers is to create and maintain obedient workers.

39   FP   ignore (1)   2016 Aug 9, 2:34pm   ↑ like (1)   ↓ dislike (0)     quote      

Sharingmyintelligencewiththedumbasses says

10 years from now??

10 years from now he'll be empty nester and will need a much smaller place. School district will not be an issue.

41   JasonM   ignore (0)   2016 Aug 10, 9:35am   ↑ like (1)   ↓ dislike (2)     quote      

Patrick says

Yes, my wife also stayed home with our kids much more than she could have if we had needed to pay a huge mortgage. Our kids benefitted a lot by the fact that we rented.

How fucking wonderful for you. Too bad for me, the rent got jacked up so high that my wife no longer has that choice.


Had I paid $2,900 to buy, we would be sitting pretty with a fixed lower payment for the next 15 years. Instead the rent is (now) $900 more per month, and the landlord has already hinted that its going up next year too.


42   FP   ignore (1)   2016 Aug 10, 10:35am   ↑ like (1)   ↓ dislike (0)     quote      

JasonM says

Had I paid $2,900 to buy, we would be sitting pretty with a fixed lower payment for the next 15 years.

Had you invested wisely your down payment money, you wouldn't have to worry about rising rents for the next 15 years.

43   NuttBoxer   ignore (2)   2016 Aug 10, 10:55am   ↑ like (1)   ↓ dislike (0)     quote      

JasonM says

How fucking wonderful for you. Too bad for me, the rent got jacked up so high that my wife no longer has that choice.

You sound like a renter with the problems of an owner. One of the biggest advantages of renting is being able to move to a place with cheaper rent. I know there's a private school by my house that's less than $900 a month. In fact, for that much you could send your kid to a Montessori school here. Not sure what your wife pulls in, but moving to a cheaper place could possibly free her up to home school. Either of those options would give your kids a better education than even the top public schools in your area.

I don't see much in the way of specifics in your thread, and don't want to unfairly judge, but I live in one of the highest rental markets in the US(San Diego), and here you could find a nice place in a decent school district for $2,000 less than what you're paying. Maybe you need to give up some house and live within your means?

Lastly, I gotta wonder if you aren't a realtor, or disgruntled Patnet user trying to smear someone with a made up story? With the litany of options at your disposal, and your apparent lack of common sense/logic in seizing any of them, coupled with the need to remain in a market that has to be the most expensive in the country/or stubbornly live well beyond your means, I'm really at a loss as to how someone could make such poor decisions.

44   Sharingmyintelligencewiththedumbasses   ignore (0)   2016 Aug 10, 11:32am   ↑ like (0)   ↓ dislike (0)     quote      

NuttBoxer says

Like all your posts, the context has been completely hacked to pieces to justify your own delusional rantings. If I'm wrong, feel free to repost the exact comments here. But you could have already done that, if being truthful instead of slanderous was your intention.

just bumped your 3 year old thread, when you didn't buy a $250K home in san diego. Try and rationalize that all day, you complete moron!

also bumped your 2010 thread, when you had government assistance to buy and didn't.

Home prices gone up a tad since 2010 in san diego?

You sir could be the worst decision maker on this forum!

45   NuttBoxer   ignore (2)   2016 Aug 10, 11:53am   ↑ like (1)   ↓ dislike (0)     quote      

Sharingmyintelligencewiththedumbasses says

just bumped your 3 year old thread, when you didn't buy a $250K home in san diego.

You've only proven you can make the same lies on stale threads you can on current ones. Still no proof to back your delusion, still looking like a lying douche who can't handle any viewpoint that's not his own.

What I did see in my old thread was a mortgage max of $1,800 a month. I just now started paying $1,850, so what that thread confirms is by renting I saved and increased my investment potential significantly for the past 6+ years.

46   tatupu70   ignore (0)   2016 Aug 10, 12:02pm   ↑ like (0)   ↓ dislike (1)     quote      

NuttBoxer says

What I did see in my old thread was a mortgage max of $1,800 a month. I just now started paying $1,850, so what that thread confirms is by renting I saved and increased my investment potential significantly for the past 6+ years.

That's not really true. You're not comparing apples to apples. The only way to compare is to look at the price of a home and the rent of the same home. And then compare those numbers.

Comparing your actual rent with your max approved mortgage payment makes no sense.

47   NuttBoxer   ignore (2)   2016 Aug 10, 12:05pm   ↑ like (0)   ↓ dislike (0)     quote      

Updated that real time thread, that I never closed out, my bad. I see why all this guessing occurred around a $250k house. Reality in real estate is never as pretty a picture as home debtors like to paint.


48   Sharingmyintelligencewiththedumbasses   ignore (0)   2016 Aug 10, 12:08pm   ↑ like (0)   ↓ dislike (0)     quote      

NuttBoxer says

Reality in real estate is never as pretty a picture as home debtors like to paint.


Homes for around $300K pencil out to mortgages arounf $1500 - $1600.

Had you bought almost anything six years ago when you were looking, your net worth would be literaly hundreds of thousands more than it is today.
loser is as loser does.

49   NuttBoxer   ignore (2)   2016 Aug 10, 12:10pm   ↑ like (0)   ↓ dislike (0)     quote      

Sharingmyintelligencewiththedumbasses says

And $1800 on a mortgage 6 years ago would have been a hell of a lot nicer living then the small apartment you are cramping your family into...

We've never lived in an apartment, ever. 3/1 900sqft house on a 7,800sqft lot for past 4+ years. Currently in a 3/2 1000+sqft house on an 8,800 sqft lot backed up to a country club, on a side street with no cross traffic. We can see people hitting the links from the backyard(with a good buffer). Hosted a birthday party for my 7 year old with a Jumpy, large storage shed, garden, 18ft pool, and swing/slide/fort thing, plus a covered patio large enough to seat all our guests. Nothing looked or felt crowded at all, everyone loves our new place.

Again, your perception isn't even close to accurate.

50   NuttBoxer   ignore (2)   2016 Aug 10, 12:15pm   ↑ like (0)   ↓ dislike (0)     quote      

Sharingmyintelligencewiththedumbasses says

Had you bought almost anything six years ago when you were looking

What specific house could I have gotten at that price where we could have looked at the property, thought about it, then made an offer? That was never possible during the time that we looked, that's why we didn't buy.

You made an assumption on a thread I never completed, and now that I've finished it and you're wrong, you still want to fantasize about it?

51   Sharingmyintelligencewiththedumbasses   ignore (0)   2016 Aug 10, 12:24pm   ↑ like (0)   ↓ dislike (1)     quote      

NuttBoxer says

What specific house could I have gotten at that price where we could have looked at the property, thought about it, then made an offer? That was never possible during the time that we looked, that's why we didn't buy.

you looked for 3 years... from 2010 to 2013 on here... meanwhile, many people managed to buy.

You are a special type of stupid, not to realize what a terrible error you made!

52   Sharingmyintelligencewiththedumbasses   ignore (0)   2016 Aug 10, 12:33pm   ↑ like (0)   ↓ dislike (0)     quote      

Chula vista, median home sales prices.

You turned down buying from 2010 to 2013, even with government assistance to get you to buy.

The median home has gone up $150,000 since you ignorantly didn't understand the opportunity you were passing up.

53   JasonM   ignore (0)   2016 Aug 10, 6:31pm   ↑ like (0)   ↓ dislike (0)     quote      

FP says

Had you invested wisely your down payment money, you wouldn't have to worry about rising rents for the next 15 years.

If your argument was "rent forever, invest the difference" that may hold. You could always find an investment better than housing The vast majority of us came here with a mix of investments to take care of us in retirement, and housing as a hedge, a cost you could fix such that you could some day buy near the bottom and move on. As it stands now, anything I could have made in investing DP money would just go to pay the relentless increases in rent.

54   JasonM   ignore (0)   2016 Aug 10, 6:34pm   ↑ like (1)   ↓ dislike (0)     quote      

NuttBoxer says

One of the biggest advantages of renting is being able to move to a place with cheaper rent.

Unfucking believable - what you describe as an "advantage" is most peoples worst fears - that rent and or prices rise so much that you are "priced out forever". I used to tell my wife that its not true, its just a bunch of bullshit that reatards use to drive people to buy out of fear. Yet here I am living that reality - I - you - all of us - are slowly being squeezed - slowly being priced out forever.

55   NuttBoxer   ignore (2)   2016 Aug 11, 1:17pm   ↑ like (1)   ↓ dislike (0)     quote      

JasonM says

are slowly being squeezed - slowly being priced out forever.

Interesting you didn't soundly refute my assertion that you may be making all this up. More details on your situation wouldn't make it that hard to put that rumor to bed. Your reply seems to be further proof you're a realtor, as that's a classic realtor line that's utter BS. If "EVERYONE" is priced out, who's going to live in the rentals? The lack of understanding of basic principles of economics by so many brainwashed lemmings being sucked over the cliff now days is astounding.

See point number 32 by OP.

56   Sharingmyintelligencewiththedumbasses   ignore (0)   2016 Aug 11, 1:22pm   ↑ like (0)   ↓ dislike (1)     quote      


The lack of understanding of basic principles of economics by so many brainwashed lemmings

a fucktard like you, who thinks not buying from 2010-2013 in chula vista makes logical sense, is going to comment on anybody else's thinking? seriously? Let's just look at that graph again...


Chula vista, median home sales prices.

57   NuttBoxer   ignore (2)   2016 Aug 11, 1:35pm   ↑ like (1)   ↓ dislike (0)     quote      


The median home has gone up $150,000 since you ignorantly didn't understand the opportunity you were passing up.

I understand that anyone who jumps head first into a decision to strap hundreds of thousands of dollars worth of debt to their backs for almost half their life is an irresponsible, shortsighted moron.

I also understand that time, not money is the most valueable asset we posses in this world, and I won't waste mine on things I don't care about. My wife quit working the first three years of our youngest daughters life, and has recently quit again to spend more time with our daughters. We don't owe anybody anything, I've had tons of disposable income to invest or spend, never stressed once about a mortgage, roof repair, plumbing issue, water heater dying. I've never spent TIME fixing anything that breaks, other than the most basic chores I choose to take on myself. We've moved as often as we liked, whenever a better deal came up. I've never slaved at a company I didn't like, although working in SW has a much to do with that as being debt free. We've spent money going to specialists to get my wife's health turned around when regular doctors weren't helping. We've invested in healthier eating and living in general. We hardly ever get sick, and none of us have any serious medical conditions. We have enough house, not too little, not too much. Nice neighborhood, good schools(for being public).

I guess mostly I like that we have the freedom to do almost anything we want at the drop of a dime, without having to worry about anything tying us down. How would your situation turn out of the economy does collapse in the next year, and the housing market plummets, making your mortgage worth more than your house? I'd be in the same place I am right now, but without having wasted all that time on something that turned out to be worth WAY less than I'd planned on.

Seems to me like you're in a desperate gamble that could ruin you if it doesn't play out like you need it to. Invested in something you have no control over. That's sounds like, how'd you put it...


You are a special type of stupid, not to realize what a terrible error you made!

58   NuttBoxer   ignore (2)   2016 Aug 11, 1:36pm   ↑ like (0)   ↓ dislike (0)     quote      


Chula vista, median home sales prices.

We could never afford Chula Vista, where looking mostly in Spring Valley. Wait!? You made ANOTHER wrong assumption...

59   NuttBoxer   ignore (2)   2016 Aug 11, 1:38pm   ↑ like (0)   ↓ dislike (0)     quote      

Dude, change your name to SharingMyASSumptionsWithDumbasses. You are wrong so many times I'm starting to wonder if you ever state anything honest or factual...

60   Strategist   ignore (1)   2016 Aug 11, 1:45pm   ↑ like (1)   ↓ dislike (0)     quote      


a fucktard like you, who thinks not buying from 2010-2013 in chula vista makes logical sense, is going to comment on anybody else's thinking? seriously? Let's just look at that graph again...

Go easy on him. Instinct tells me he would have purchased a home, if he could. He could not for whatever reason, resulting in sour grapes.

61   Sharingmyintelligencewiththedumbasses   ignore (0)   2016 Aug 11, 1:57pm   ↑ like (0)   ↓ dislike (0)     quote      


I understand that anyone who jumps head first into a decision to strap hundreds of thousands of dollars worth of debt to their backs for almost half their life is an irresponsible, shortsighted moron.

I also understand that time, not money is the most valueable asset we posses in this world, and I won't waste mine on things I don't care about. My wife quit working the first three years of our youngest daughters life, and has recently quit again to spend more time with our daughters. We don't owe anybody anything, I've had tons of disposable income to invest or spend, never stressed once about a mortgage, roof repair, plumbing issue, water heater dying.

You are paying $1850 a month in rent... which will increase as time goes up.
Corrected my graph to Spring Valley, which makes your decisions look even more stupid. The median price in spring valley was $200K, so you could have bought a home, a median home, for a payment of more like $1200-$1300 a month. A water heater costs $750 or so installed, a shingle roof a few thousand and will last 25 to 50 years.

ONE year's lower mortgage payment compared to your rent and you could afford both.

meanwhile, home prices there have doubled on average.


63   Strategist   ignore (1)   2016 Aug 11, 2:11pm   ↑ like (1)   ↓ dislike (0)     quote      


meanwhile, home prices there have doubled on average.


And will double again. Real Estate prices are too low compared to interest rates and rents. It was and still is, the bargain of the century.

64   someone else   ignore (0)   2016 Aug 11, 4:19pm   ↑ like (0)   ↓ dislike (0)     quote      

Strategist says

Real Estate prices are too low compared to interest rates and rents.

What? As if interest rates could go much lower? Dude, asset prices move inversely to interest rates.

As for rents, do the calculation:


Just don't assume too much appreciation. May not happen like you hope.

65   Sharingmyintelligencewiththedumbasses   ignore (0)   2016 Aug 11, 4:45pm   ↑ like (0)   ↓ dislike (0)     quote      


Dude, asset prices move inversely to interest rates.

Hasn't happened in the past.
The reason is, interest rates won't rise significantly, unless we are seeing real inflation. Real inflation, as in income and rents, absolutely supports higher home prices, in fact, an inflationary environment, it would make sense to buy with a mortgage higher than rent, as time and inflation change the calculation.

Further, if we have higher rates, that will make a HUGE incentive to not sell your home if you have a rate at today's lower rate. I'd expect the market in terms of sales to slow way down if rates go up, but probably not cause the price drops you are thinking of, and this website has hoped for, for over a decade now.

66   Strategist   ignore (1)   2016 Aug 11, 5:27pm   ↑ like (0)   ↓ dislike (0)     quote      


What? As if interest rates could go much lower? Dude, asset prices move inversely to interest rates.

Asset prices are inversely related to interest rates. Interest rates have fallen, but asset prices have not followed to the degree they should. Just look at the CAP rates. 3% to 4% in OC, and less in BA is still very high. There is a lot of room for further increases. The primary reason why I believe home prices must rise is what I have been touting all along i.e. not building enough homes to accommodate a rising population.
Since last year I have been predicting $850K median in OC by 2018. So far we have reached $660K, a new record.

67   BayArea   ignore (0)   2016 Aug 11, 8:57pm   ↑ like (0)   ↓ dislike (0)     quote      

Sharingmyintelligencewiththedumbasses says

Further, if we have higher rates, that will make a HUGE incentive to not sell your home if you have a rate at today's lower rate.

As mentioned, real estate prices have an inverse relationship with interest rates which cannot go any lower.

As covered in Patrick's book, there's an advantage to buying at a lower price and a higher rate (assuming everything else is constant) because at some point down the line over the course of that loan, you'll refinance. If you buy at the high price with the lower rate, there's no chance to do that. Don't get me started on property tax between the scenarios.

If you buy today at record low interest rate, and next week the interest rate hikes, guess what happens?

The above is fundamental, but of course on the Peninsula and many other parts of the Bay Area, we have a housing shortage which trumps the fundamentals described above.

68   someone else   ignore (0)   2016 Aug 11, 9:29pm   ↑ like (2)   ↓ dislike (0)     quote      

As long as all else is equal (constant inflation), asset prices move inversely to interest rates, but I can see that if we get big inflation in salaries, then house prices could move up due to the increased salaries just before or at the same time as the Fed raises rates to contain inflation. But the increased interest rates would then be a drag on housing prices. I suppose it is a timing game at that point.

69   RealEstateIsBetterThanStocks   ignore (0)   2016 Aug 11, 11:41pm   ↑ like (1)   ↓ dislike (0)     quote      

JasonM says


no it's just you.

70   knownothinghavenothingowenothing   ignore (0)   2016 Aug 19, 10:35am   ↑ like (1)   ↓ dislike (0)     quote      

What about short sells and foreclosures? If I buy one of these type of properties, which normally come with a large amount of equity, and sell in 2 to 5 years, I'll most likely have a mortgage payment that's lower than rent in the area and will make and will make a profit in the end. Then I can do it again. As long as I'm paying lower than rent and the amount of mortgage and interest paid is lower than the profit I make when I sell, I'm golden. Right? This is especially if I buy a repo/short sell with newer high cost components (e.g. roof, A/C unit, plumbing) Thoughs?

71   The Original Bankster   ignore (2)   2016 Aug 19, 11:50am   ↑ like (0)   ↓ dislike (0)     quote      

I bought an REO in downtown phx.

72   mell   ignore (1)   2016 Aug 19, 1:15pm   ↑ like (0)   ↓ dislike (0)     quote      

Patrick says

As long as all else is equal (constant inflation), asset prices move inversely to interest rates, but I can see that if we get big inflation in salaries, then house prices could move up due to the increased salaries just before or at the same time as the Fed raises rates to contain inflation. But the increased interest rates would then be a drag on housing prices. I suppose it is a timing game at that point.

Absolutely, btw. Vancouver may start to crack. What will happen when housing goes down DESPITE ZIRP?

73   junkmail   ignore (0)   2016 Aug 19, 1:26pm   ↑ like (1)   ↓ dislike (0)     quote      

Strategist says

Since last year I have been predicting $850K median in OC by 2018. So far we have reached $660K, a new record.

Some quick sums
850K asking price.
Principal and Interest = $2,965
Property Tax = $556
Homeowners Insurance = $212
TOTAL = $3,734 pcm

A/ At the conservative lenders 4:1 ratio they expect the household income to be $14,936 pcm
B/ Risky lending 3:1 ratio they expect the household income to be $11,202 pcm

A/ That's $179,232 pa
B/ That's $134,424 pa

OK let's see what the median household income (pa) is in OC?


Hmm do you anticipate a wage/salary increase of between 76% - 135%?


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