One of the reasons we would often hear people use to justify overspending on a home during the bubble was that they wanted to stop “throwing away money” on rent.
I would hope that by now most people have realized how ridiculous that concept is, but I thought it might help dispel the notion if we consider a pair of hypothetical (but completely plausible) scenarios.
Couple A is renting a 2-bedroom, 1.5-bath townhouse for $1,000 a month in Ballard. Their $1,000 pays for not only the roof over their heads, but the water/sewer/trash, any necessary maintenance, and access to shared facilities such as a pool, hot tub, and workout room.
Over the past three years Couple A have spent around $35,000 on shelter. If they decide they want to move, it’s as easy as waiting until the lease is up and collecting their security deposit.
Couple B decided in 2006 that they were tired of “throwing away money on rent.” They didn’t have a down payment, but that of course didn’t stop them from qualifying for a $400,000 loan on an adorable 2-bedroom, 1.5-bath Ballard craftsman. With an interest rate of 5.7%, their (PITI) payments are around $3,000. Of course, this doesn’t include any services or maintenance.
Over the past three years Couple B have spent around $67,000 on mortgage interest alone, and their home is now valued at around $340,000—15% less than they paid. If they decide they want to move they have three options: Come up with about $40,000 in cash to cover the difference between their mortgage and the house’s value, convince the bank to accept a short sale, or walk away.
Now, which of these hypothetical couples seems more like they have been “throwing away money” to you?
tomtom » Jun 9, 2009 at 10:57 am
Your Home is your Best Investment.
David McManus » Jun 9, 2009 at 10:59 am
<sarcasm>
Tim, you forgot the mortgage interest deduction that those dirty renters don’t get. That certainly more than makes up the difference.
Harharharharharhar
</sarcasm>
Trigger » Jun 9, 2009 at 11:02 am
I have a question.
I know this is still not happening in Seattle. But in some parts of the US you can get a 90% discount on the house you buy from foreclosure. So say if the house was worth 1 mill – you can buy it for 100K. I think it does make sense this way?
Seattle has a long way to go in terms of price adjustments. But maybe buying something that is auctioned off – is the way to go? Especially if the price is 90% lower than what the person originally paid for it.
singliac » Jun 9, 2009 at 11:07 am
What about all the intangibles of owning?! =)
Groundhogday » Jun 9, 2009 at 11:17 am
I understand your point, Tim, but this isn’t exactly an apples to apples comparison. A townhome isn’t the same as a 2-bedroom craftsman.
The more general point is that “equity” isn’t something magical that is bestowed by financial fairies upon homeowners. Equity is money. And by saving money every month, renters can build equity. Moreover, homeowners face the risk of losing “equity” should the value of their property decline–a lot of equity if the house is leveraged. So renting and saving can be considered a more conservative means to build equity.
Right now we rent for $725/mo including all utilities, and that allows us to build equity at the rate of $5k/mo in the form of supplemental retirement savings (Treasuries and TIPS) and non-retirement money that we will eventually use to buy a house with cash (currently in FDIC-insured CD’s, TIPS, FDIC-insured foreign currency CD’s). At some point, when home prices drop enough we will buy a house with cash and then continue so save money every month (no rent)–in other words continue to build “equity” by spending less than we make every month. This is a different model, and perhaps extreme, but provides a useful counter example for those who say renters can’t build equity.
singliac » Jun 9, 2009 at 11:18 am
RE: Trigger @ 3 –
I think you’ll find that it’s never as simple as the equation you put forward. There’s not going to be some magic percentage of price reduction, there is only present value. If the price looks reasonable to you, by all means, go for it. As for finding these incredibly cheap foreclosure properties, I don’t think it’s quite as easy as they make it look on TV. You have to realize that there are lots of investors out there looking for these GEMS full time. The good news for us regular folks is that these foreclosures push prices down across the board.
singliac » Jun 9, 2009 at 11:22 am
By Groundhogday @ 5:
Yeah, the two-bedroom craftsman is 100 years old with moldy walls and rotten wood.
Groundhogday » Jun 9, 2009 at 11:23 am
By Trigger @ 3:
This is extremely rare. Perhaps if an investor buys a large number of foreclosed homes as a block in an extremely depressed market (e.g. Las Vegas), this sort of mark off is possible. But they would then have to trashout and rehab the foreclosures, take a loss on some sell the rest back at 60-70% off peak. And the units with large discounts are primarily at the low end of the market, not $1 million houses.
We don’t need house prices to fall 90% in the PNW for buying to make sense. Given the fundamentals, 30-40% will probably suffice for most neighborhoods. I’m seeing more and more units at the lower end of the market priced at levels that almost make sense from a price/rent perspective (another 10% and its time to buy)… though the mid-to-high end remains stubbornly overpriced.
Groundhogday » Jun 9, 2009 at 11:24 am
By singliac @ 7:
Point taken! But Tim did say the Craftsman was “adorable.”
The Tim » Jun 9, 2009 at 11:32 am
By Groundhogday @ 5:
In virtually every other rent-vs-purchase comparison I have made on the site, I have stuck to comparing functionally-identical living quarters. Often people point out that this is an unrealistic comparison since most people tend to upgrade their living space when they move from renting to paying a mortgage. So I thought this time I’d run a hypothetical with a slight upgrade.
Groundhogday » Jun 9, 2009 at 11:43 am
RE: The Tim @ 10 –
I see your point and yes, this is more realistic. People usually seem buy as much house as they can possibly afford, really max out on their monthly obligations far beyond what they would conceive of paying in rent.
The Tim » Jun 9, 2009 at 11:45 am
By Groundhogday @ 11:
Fixed that for you. ;^)
Scotsman » Jun 9, 2009 at 11:58 am
Couple B wins this one hands down. They have enjoyed the social status of home ownership, and can walk about with their heads held high, as opposed to the “dirty” renters who are shunned at every opportunity.
The home owners have benefited from a massive interest deduction that according to urban legend amonst the mathematically challenged is almost enough to let them live in the home for free.
When the home owner’s hours at work are cut in half, they will be able to qualify for food stamps thanks to their high housing costs. The simpleton renters will have to pay for their own food.
When the buyers fall behind on their payments, the government will step in and force reductions in both the interest rate and loan balance. Rumor is they will also get a free vacation voucher to go to Vegas for the weekend. The renters will be stuck at home, watching TV.
When the buyers eventually default, they will get to live in the home for free for up to a year and a half, maybe more.
One final consideration- the buyers pulled out $70,000 in a HELOC on the way up, bought a new Mustang, went to Europe for a month, bought a big screen, and paid for adult orthodontia. The renters haven’t been anywhere, drive a used Accord, and still have crooked teeth.
And all that money the renters saved? The government, now broke, is getting ready to confiscate private savings and convert them to long term annuities… that may or may not actually be paid back.
Tell me again who wins?
The Tim » Jun 9, 2009 at 12:04 pm
RE: Scotsman @ 13 – You make a compelling and depressing case. Of course that still doesn’t mean Couple B hasn’t “thrown away” more money. Just that they’re being rewarded for it.
Magnolia44 » Jun 9, 2009 at 12:16 pm
What about couple C versus couple D.
The couple that bought 20 years ago and the couple who never could pull the trigger and has never owned, always rented. They exist.
Who is ahead? Easy to pull the 2006 scenario and one of the worst bubble run-ups.
I don’t knwo the answer to the above but how is it?
Magnolia44 » Jun 9, 2009 at 12:22 pm
Good points by Scotsman, in these times and as things get worse which couple will has a better chance at a bailout, or modification?
Which couple will be protected from coming inflation?
Good points to ponder big govt and printing presses may side with couple A
David McManus » Jun 9, 2009 at 12:27 pm
Which couple is still together? A or B? My money’s on A.
Jen » Jun 9, 2009 at 12:28 pm
Is that a realistic comparison?
We rented a two bedroom house in Crown Hill for $1500/month and paid all utilities (oil heat and poorly insulated house meant extremely expensive winter months). We bought our two bedroom house in Ravenna (nicer neighborhood, comparable house but with much better insulation and much lower heating costs) for $375,000 with 5% down. Our PITI is $2300/month. Obviously, more than we were spending on rent but between the utility savings and the tax deduction, it’s a far cry from the disparity you use in your example.
Oh, and we shopped quite a bit for our rental and found it a good deal. It did not come with any type of lawn service, so we were responsible for a lot of the same maintenance we now have as owners.
Dave » Jun 9, 2009 at 12:28 pm
I have a question.
I have lurked here for a very long time (years). I have posted a few times. I do have a question.
Can this site predict the upswing?
Reading the post I understand that many of the people have a great sense of schaffefreude (sp?) on the housing market. In the above examples you get an obviously palpable sense of glee at the people who lost/spent badly. I don’t know why there is such glee – jealousy, stress, happiness at he expense of other, you name it.
Why don’t you rewrite “throwing away money on rent” to “wanting to provide a stable home for their child and invest in the future”? Would the gleeful mocking still happen?
Let me add I don’t think we are at housing bottom yet – maybe a few more years.
My point is this – since everyone seems to be having a great time with how bad things are – can this site actually be predictive and provide helpful information for when the market is turning? I’m not seeing much value for me to revisit. Maybe I’ll find that info somewhere else.
I’m sorry – I like that this site exists and take this comment for what it is worth – it’s starting to sound like a broken record around here.
Flame away.
Dave
John Smith » Jun 9, 2009 at 12:30 pm
My wife and I have been renting and saving since we both graduate from school (me law school and her engineering undergrad). Back in 2005 we considered purchasing a home on the eastside (we had already saved $100k at that point). But, I felt prices seemed unsustainably high and frankly we wanted a nicer home than our $100k downpayment would afford with $450k mortgage.
Today I’m in my early 30’s and she’s in her mid-20’s. We have now saved just shy of $400k stashed in various savings accounts–while still fully funding our 401k’s the whole time and even purchasing a tournament wakeboard boat and truck to tow it outright. For the last 7 years we split our time renting an apartment on the water in Kirkland and a house in the neighborhood to which we wish to purchase in and retire.
We both earn considerably more today than we did back in 2005, when we do purchase I will not borrow more than $400k now, we will be putting 50% down, and do not have the headacke of having to sell a house first.
I am VERY happy we did not purchase back in ‘05-’06. Our lives will be far better for having waited and I don’t feel like we have sacrifised too much. For us, renting these last 7 years was the best decision possible. I suspect we will finally be purchasing this coming fall. AT LAST!!!
SeaBuyer » Jun 9, 2009 at 12:32 pm
Ah, the old comparison…
So let’s continue with Tim’s scenario. Couples A and B decide to stay where they are living. So Couple A keeps renting, Couple B in their new lovely townhome.
Now let’s fast forward time 30 years….
Couple A will be paying, say, $2000 a month for their apartment, as inflation has made rent prices go up.
Couple B will still be paying $3000 a month since they got a fixed rate. But now they own a home outright that’s worth $340,000, assuming the bubble is not back in 30 years.
That’s the one element your comparion left out, Tim. I know your come back will be that couple A has been investing that money monthly and will have built way more than $340,000 in 30 years. By my point is not that couple B did the right thing by buying, but just that the final asset is something that should be taken into account too.
Dave » Jun 9, 2009 at 12:33 pm
RE: The Tim @ 10 – My situation seems to be reversed from what you describe. I have always felt that if I can spend “X” amount of dollars on putting a roof over my head, then it shouldn’t matter whether I’m buying or renting. Either way, I need to be able to afford stuff and to save money (both retirement and medium/long term savings). So from my perspective, buying (I’m currently renting) will be somewhat of a downgrade. I’m currently paying $1300/month for a nice 3 bdrm/1 ba house in West Seattle on a quiet street, with a full finished basement. I am a long term tenant (6+ years) that has not had a rent increase (although current rent would probably be closer to $1600). I cannot come close to buying something similar and still keep my housing costs below $2K/mo. A house of similar size/quality/location would cost me AT LEAST $2400/mo. (not including the big down payment and transaction costs).
So, in the meantime, I’ll just be content to be a “happy renter” and put all my extra money in the bank.
Magnolia44 » Jun 9, 2009 at 12:37 pm
Congrats
All that time you were that guy living in an apartment driving a nice rig and hauling a boat around.
I would rather have bought a house and lost money then look like that guy. Lol I am joking for the most part but can you imagine?
David McManus » Jun 9, 2009 at 12:38 pm
By Dave @ 19:
Clears throat…….
Ummm, wasn’t there gleeful mocking in the bubble years for all those poor saps who didn’t buy into the hype and were called idiots or “buy now or be priced out forever”? Where was their sympathy? Disclaimer: I am a home owner since 2003 and bought a reasonably priced place with 20% down. Has I put nothing down, the value today would be about the same I paid for it, with a net gain to me of…..NOTHING! And we’re still going down…….
I didn’t see any calls for sympathy during the bubble years for all those people that couldn’t afford anything because they were priced out. Disclaimer: I am a homeowner since 2003 who put 20% down and my house is now exactly worth what I paid for it. Any price reductions now are eating into my down payment. And they say housing is a good investment…… Ha!
The Tim » Jun 9, 2009 at 12:39 pm
RE: Dave @ 19 – http://seattlebubble.com/blog/2009/02/16/bottom-calling-week-on-seattle-bubble/
S. Marty Pantz » Jun 9, 2009 at 12:39 pm
By singliac @ 4:
Is that like “the Starbuck’s experience” you get with your premium-priced coffee?
John Smith » Jun 9, 2009 at 12:43 pm
RE: Magnolia44 @ 23 –
Yes, but the first 4.5 years was in an apartment “on the water” and the last 2.5 years have been renting a single family home in the neighborhood we want to live in.
I heard the single most important lesson you can teach your children is delaying gratification (next to your faith of course). Having done so, I suspent my desire for a long and rewarding retirement is far more achivable and will not expose my self to the risks of high leverage. If you want a stable financial life story–avoid leverage & divorce.
Magnolia44 » Jun 9, 2009 at 12:47 pm
John,
I was joking and being a smart *** you made the right move.
softwarengineer » Jun 9, 2009 at 12:48 pm
LEST WE FORGET THE APPROXIMATE TAX DEDUCTION(S)
Subtracting their approximate income tax advantage:
$2995 interest [$5/mo goes to pay off $400K principle] x 12= $35,940
$35,940 – Insurances [property and mortgage]= $33,540 [no tax write off there]
$33,540-10,000 [approximate standard deuction married]= $23540
[I'd add charities to deduct, but this couple is broke]
$23,540 x .28= $6591 tax credit for buying house or $549/mo….hey that takes their actual payment down from $3000 to $2451/mo….what a deal.
Add in $8000 tax credit next year, but wait, not quite, they only owe like $11,000 income tax; so they only get a $4408 Obama Tax Credit…..
Kary L. Krismer » Jun 9, 2009 at 12:54 pm
By SeaBuyer @ 21:
$2,000 a month is generous for rent in 30 years. That would be less than 3% inflation over the period.
But let’s say it is only that, couple B would have an asset worth $680,000, which they could take a reverse mortgage on to meet their living expenses during retirement.
I think you could run similar comparisons on buying a car versus leasing, that would show the owner behind after 3 or 5 years. But let’s run the numbers on say my purchase of a pickup truck that I bought 20 years ago and paid off in three years, compared to someone who leased vehicles the entire time.
Scotsman » Jun 9, 2009 at 12:54 pm
RE: Dave @ 19 –
Does couple B have a stable home environment? No.
I’m not going to get into the numbers, but assuming equal incomes and competent investment strategies, the renters will always come out ahead in terms of net worth. The leverage of the home value works for the buyer’s advantage initially, but compound interest earned verses paid, coupled with lower taxes and maintenance eventually
swing things to the renter’s advantage- big time.
I’ll tell you when we’ve hit bottom, and are starting up. It won’t be soon. ;-)
Hector » Jun 9, 2009 at 12:56 pm
Scotsman, I’ll let you know how that works out for my bankrupt, out of work (by choice), brother in law.
Looking at this life of travel and gadgets makes me wonder if my credit score is really worth it.
The Tim » Jun 9, 2009 at 1:06 pm
RE: Magnolia44 @ 15 & SeaBuyer @ 21 – Who says Couple A is going to rent forever? Just because someone didn’t fall for the bubble hype doesn’t mean they will be a renter for life…
Groundhogday » Jun 9, 2009 at 1:12 pm
RE: Jen @ 18 –
You forgot about taxes and insurance. These are far more than your utility savings. And as you will discover, maintenance involves far more than mowing the lawn. You are throwing more money away on interest, maintenance, taxes and insurance than you were throwing away on rent previously.
That said, if you bought a house you can afford, enjoy living in, and plan to stay a long time, who cares? Just don’t expect to get rich by owning a home.
softwarengineer » Jun 9, 2009 at 1:13 pm
RE: Hector @ 32 –
I KNOW WHAT YOU MEAN HECTOR
They say you need like 6 month’s income [net or gross?] cash in the bank [or your cash can] to carry you through a layoff. God forbid you’re contracting your lost job(s), no unemployment for you then and you’re off the unemployment count, when you’re fired too. I hear contracting employees are a large chunk of America’s workforce of late, makes this recession/depression/stagflation or whatever the Hades you call this economic mess much, much worse than past recessions with hardly no contractors getting laid off.
Imagine how hard it will be for Couple B to save the 6 months of household income…..especially with that 30 year $2500/mo noose around their neck…
I have a girlfriend that’s contracting with three kids, that I believe just got laid off too [she hasn't told me, it's intuitively obvious]. I suppose she’s my likely ex-girlfriend now…this economic mess is horrifying….
Groundhogday » Jun 9, 2009 at 1:19 pm
By The Tim @ 33:
.
That is the bottom line isn’t it? Most of us are not buying because we think housing is too expensive, but we will buy when prices come down to a level we consider reasonable (based upon rents and incomes).
mukoh » Jun 9, 2009 at 1:21 pm
RE: Trigger @ 3 – I don’t think you know what you are talking about. If you do please provide exact info.
AnoneMe » Jun 9, 2009 at 1:33 pm
Thanks but I will take my overpriced craftsman on Queen Anne any time!
John Smith » Jun 9, 2009 at 1:36 pm
RE: John Smith @ 20 –
In contrast to my life story is (unfortunately) the best man at my wedding. We both went to law school together and ended up practising the same type of law–him in Silicon Valley, CA and me up here in Seattle. Back in 2005 he and his wife purchased a town house in San Jose, CA. He financed 103% (purchase and closing costs). Today, he has two kids in a small town house with no yard and would love to move to a single family home with a backyard for his kids to play under their mother’s watchful eye. Unfortunately, he owes $620k on a house Zillow estimates at less than $450k. Since his mortgage is interest only the debt is not shrinking and his 5 year fix, interest only ARM will start floating in a little over a year.
This is a lousy situation for such a nice guy (kinder heart than mine) and it is even more bizzare given how much he earns. While he is able to save $1000/mo after expenses that is nowhere enough to dig himself out of his house hole. I’m not sure what he will do in a year–but I wouldn’t be surprised if he walks. It is sad that someone earning so much money, has a negative networth after practising law for over 7 years.
SeaBuyer » Jun 9, 2009 at 1:44 pm
RE: The Tim @ 33 –
Ah, so now we are talking. You had scared me for a second there :-)
On a related note, what would be the recommendation from visitors to this blog to Couple B? They fell for the hype, lost money and will keep losing it for who knows how long.
a) Keep the house and hope for the bubble to be back someday.
b) Sell and cut their losses now and cover the balance out of pocket to keep a prestine credit score and buy again when the bubble has fully deflated.
c) Deal with the stressful short sale process assuming they can prove to the bank they can’t afford their home anymore.
d) Walk away and wait until the bubble has deflated and wait until their credit has recovered to buy again?
Ray Pepper » Jun 9, 2009 at 1:58 pm
I tell you what is happening to couple B. They will be involved in short selling their property at some point in the next decade. We are a mobile society and we must sale. We don’t have the funds to cover the shortage and we will not for this decade at least.
The short sales process will be cleaned up by 2010 and it will stream line much faster however, the vast numbers will increase significantly that will bog down the system putting a FIRM lid on any appreciation.
When we will hit the bottom? Scotsman says he will let you know. Everyone has a guess. There is no bottom as long as short sales increase and foreclosures rise. Ride this stock market rally and keep tucking cash away.
The best GEMS are yet to come!
Groundhogday » Jun 9, 2009 at 2:36 pm
By AnoneMe @ 38:
Yes, but what if the BANK takes a lot of those overpriced craftsman homes on Queen Anne, and we buy them for substantially less than you paid at the peak. Still wanna take that overpriced craftsman?
Groundhogday » Jun 9, 2009 at 2:50 pm
It seems to me that we have been talking primarily about people who have a choice: buy or rent. But the market will ultimately be controlled by financial limitations on buyer choices. Only so many people have the downpayment, credit history, and income to purchase a $400k home. Only so many can buy a $500k home, etc… If there is a fundamental mismatch between the distribution of asking prices vs. the distribution of buying power, then prices have to fall. NOT because people WILL NOT buy houses that they deem too expensive, but because they CAN NOT buy houses that are too expensive.
The essence of the bubble was that people were allowed to buy houses that they could not afford. Game over.
David McManus » Jun 9, 2009 at 2:53 pm
RE: Groundhogday @ 43 –
I think you’ll find that the majority of people in the Seattle area are cash poor and that even if they do have the cash, when faced with the prospect of even putting 10% down on a 400K or 500K home, they’d rather keep that money in other “safe” investments rather than put it in a depreciating asset.
AnoneMe » Jun 9, 2009 at 3:05 pm
I already have it and yes, if I had to sell today I would take a fat loss. However, I do not plan to sell unless disaster strikes. If you made a rational decision to buy a house, even at the peak, you should still be able to afford it today. Your only real choice is to pay it off which is what we planned to do anyway. I do admit to the occasional nauseous feeling in my stomach. So, instead of blowing the $75k – $100k we planned on spending on renovation, we plan to prepay the mortgage for the next couple of years. I still like my home and haven’t found one in my neighborhood in my price range I would consider buying even at today’s prices and that helps a bit.
Having said that, I don’t think I would touch the real estate market for the foreseeable future if I had not bought my home a couple of years back.
Hello everyone, I am B****** a home debtor and I overpaid for my house. Ahhh, that felt good.
The Tim » Jun 9, 2009 at 3:11 pm
RE: AnoneMe @ 45 – Sounds like you are making smart choices except of course the buying near the peak part. Good for you, I applaud your responsibility.
In all honesty though, I don’t know why you would be coming to this site. I imagine most of my readers as home buyers or sellers, potential home buyers or sellers, or people in the RE industry. I’m curious what interest you have in the site as someone who has a home and plans on simply paying it off?
What The Heck » Jun 9, 2009 at 3:20 pm
Bought the home 13 years ago and it will be paid off this year.
Purchase price $165,000
Zillow Estimate $325,500 (had to pick a number so I used the easiest one to get)
4 bdrm, 2 1/2 bath on 10,000 sq ft lot with 2 car garage. Replaced roof once $8500. Other improvements 17,500 for a total adjusted cost of $192,000. If sold for 325,500 gross profit of $133,500.
Tax savings covered 3200.00 year property tax.
Interest – yep alot.
But now I almost own it and can sell it. If I don’t I start living here for the cost of utilities/taxes and upkeep. Less than renting I would think.
The point is either of us can take a snapshot in time to show the numbers we want. If I’d sold in 2007 when houses in the hood were moving in 3-4 days at $370,000 plus I’d be better off of course. But who really knew the future. All I know is I’ve raised two kids here, made many friends and it is affordable. I bought a home, not an investment and I believe that is truly the choice most people have to make.
Groundhogday » Jun 9, 2009 at 3:25 pm
RE: AnoneMe @ 45 –
Refreshingly honest. My BIL owns a craftsman on Queen Anne that they have remodeled so much that they have put in far more than it is worth (at least $600k into a tiny 2 bedroom on a tiny lot). He refuses to acknowledge that they’ve lost money on the house, can’t believe that home prices will ever “really” fall on Queen Anne, etc… They don’t have a mortgage, have paid for the remodeling out of savings over the past 20 years, and have money to burn… so it isn’t as if they are hurting (successful DINKs). But it still irks me that after bragging about how much his home was worth for the past decade, he can’t admit to losing money.
Groundhogday » Jun 9, 2009 at 3:27 pm
RE: What The Heck @ 47 –
13 years ago you could buy a home, not an investment in Seattle (and many other places). That all most of us want.
Scotsman » Jun 9, 2009 at 3:28 pm
People make lots of seemingly irrational decisions, at least in other’s eyes. That’s fine, it’s part of how we express our individualism. What sets the home buying (holding) decision apart is the magnitude of the consequences. Most of us have a pretty good sense of what our life’s total financial resources will be. The question then becomes how much are you willing to allocate to a certain loss?
A mentor of mine once commented that if we had to pay for cash for everything, we’d buy much less. The inability of many to connect monthly payments, a cash-flow based life style, with total actual cost further blurs the picture. Interest and it’s effect on total cost paid isn’t well understood or appreciated. By holding onto a financed home in a seriously depreciating market one gives up much more than just the paper loss. Future choices and the freedom that comes with them are also constrained. By essentially financing the loss it’s magnified, perhaps doubled. But monthly payments let us absorb the pain slowly.
Jen » Jun 9, 2009 at 3:37 pm
RE: Groundhogday @ 34 –
The $2300 I used includes tax & insurance. And sure, we’re spending more. I just think that sometimes the examples on here are extreme and thought I’d offer my “real life” example. FWIW, we bought over a year ago.
mukoh » Jun 9, 2009 at 3:37 pm
RE: Scotsman @ 50 – A lot of people also have disconnect between paying cash $40k for a car, and having payments for 5 years that add up to $55k. In the event that the car is financed if the person doesn’t make 20% or more on the money they have in their pocket because of leverage then they lost $15k.
A few of my acquaintances from the wannabe lifestyle scream a lot about just a low monthly payment versus bulk one time, not realizing that financing adds another 15% to the purchase.
mukoh » Jun 9, 2009 at 3:39 pm
Tim, I went on craigslist and looked through rentals, there isn’t a townhome anywhere in Seattle metro for $1k a month for 2 BR. I remember paying $1400 way back in 1999 for a 2 BR on QA, + utilities $300 a month. You have any rentals that you have seen for your assumed scenario for couple A?
softwarengineer » Jun 9, 2009 at 3:41 pm
RE: What The Heck @ 47 –
GOOD FOR YOU WHAT THE HECK
I see no HELOC mentioned by you too. Suzy Orman would be proud of you, especially if you have like $100K in retirement for each 10 years on you life too.
I paid mine off too this year, the $80K I was leaving in my principle for a tax write-off of property tax and charities became a joke when BECU lowered their Money market to 1% [about $70/month interest after taxes, versus the approximate $600/month I saved converting to gross pay]. I’m debt free too and like you, have an early retirement with my paid off principle money making a decent hypothetical interest rate now.
You sure can save money fast with just a property tax/insurance/water bill and still spend/save money like a fiend…..especially if you did what I did in 1999, I purposely bought way less of a 2nd home after a horrible divorce, than I could afford. My old Bellevue house during my marriage was bigger, but so are its utilities/taxes.
I predicted this imminent bubble collapse then [1999] and played my cards right.
My 2 x 6 insulated 1500 SF modular home has half the utilities of those McMansions and half the property taxes too [the good news, the prices in the HOA I live in were cheap enough to actually have lots of KIDS in the neighborhood for my kids]. Almost everyone in my HOA neighborhood makes far less pay than me, and now they know why I live with them [don't ever buy high before an imminent collapse, same with the stock market too]…LOL
Enjoy your new found wealth…have a party, open some champaign :-)
sead97 » Jun 9, 2009 at 3:47 pm
By Magnolia44 @ 15:
If couple D put their money in the stock market, they probably won. For most of history housing is a poor investment. But it’s good forced savings, which we all know most Americans desperately need.
Nixy » Jun 9, 2009 at 3:54 pm
RE: mukoh @ 53 –
I second that. I am currently looking to rent a two bedroom townhouse or cottage and there is NOTHING for less that 1200, and 1400 is much more realistic (and that’s with out utilities).
While I’m sure that “super” deals out there exist, I think that it’s more realistic that someone in their late twenties, married with or without kids is going to look to be paying 1500 a month to rent a comparable place to what they would/could buy.
Kary L. Krismer » Jun 9, 2009 at 4:00 pm
By Groundhogday @ 36:
Not to pick on anyone in particular, but for many people that would presumably be never, and so yes, they would be renters forever. As long as someone values owning real estate less than most other people, real estate will always be overpriced to them.
Again, going back to cars, that’s why I’ll never own a Lexus, unless someone gives me one. I don’t value cars that much.
AnoneMe » Jun 9, 2009 at 4:01 pm
By The Tim @ 46:
I am interested in the real estate market as a somewhat detached observer for now. I first realized the possibility of a bubble some time back and held off buying for this reason. However, due to life circumstance, the market remained irrational longer than I could stay rational so I bought. I was relatively conservative in buying something within my means and am fortunate that my income has been stable in the years since my purchase. This allowed me to reduce my exposure by saving up a significant cash buffer and also refinancing.
Most of the arguments made on SB resonate with me because these were the issues I battled with over the years prior to buying. Some views are extreme and the truth lies somewhere between extremes. I see the Real Estate collapse as a small portion of the overall deterioration in the fundamentals of the US economy and the unsustainable economic models the USA now deploys. I like to think of myself as an informed observer and SB provides me with a train of thought I can use to clarify my thinking on the larger economic picture.
Other reasons for following SB is it provides a single location where I can find relatively objective information on the Seattle housing market. I believe that once you are in a market you need to follow it – even or maybe especially when the market works against you. Also, as much as I would deny this in public I actually enjoyed the process of finding and buying my home so I follow a number of RE blogs and SB is one of those.
deejayoh » Jun 9, 2009 at 4:09 pm
I can give a personal example of what it has been worth for me to stay out of the housing market for the past few years
Scenario A: I had a townhome under contract in summer 2006 for $530k purchase price. I planned to put 20% down and take a 30 year fixed mortgage for 6%. My monthly PITI, net of tax shield would have been about $2065 per month on average. This was a place in Madison Valley. Nice unit, but kind of transitional neighborhood
Scenario B: Instead, I got of of the contract and rented a nicer townhome near 15th on Capitol Hill. My monthly rent is $2100 – slightly more than my tax-shielded mortgage payment. But guess what? My $130k down payment has been sitting in the bank earning interest. Even if I figure I only got a 2% return, I’ve made $8k in interest for having it sit in a money market account
And guess what? That townhome now zillow’s for $404k – or about 25% off it’s peak price. I figure that is about $130k that I have not thrown away. More than that if I had to sell today because I’d give up at least another $16-20k in transaction fees.
I would not extend this example out for 30 years – but this is the “Seattle Bubble” site, not the “Never buy a home in Seattle site”. Tim started the site in August 2005 on the premise that NOW is not the time to buy a home, and IMO, he has been right.
Brad » Jun 9, 2009 at 4:11 pm
Transaction costs are also excluded here – somewhere around 10% of the house’s value to make a move goes to taxes, realtors, loan origination fees, inspections, etc.
Opportunity cost shouldn’t be overlooked, either. Because I didn’t own, I was able to move to Seattle from Denver for a better job and now make $40,000/year more. I wouldn’t get that in home appreciation in all but the craziest bubble years.
The Tim » Jun 9, 2009 at 4:12 pm
RE: Jen @ 18 & mukoh @ 53 – In my hypothetical scenario, the couple has been renting for at least a few years. I assumed rental rates of ~5 years ago plus some moderate yearly increases in rent that bring it up to $1,000. Many landlords don’t hike rents up to full market rate for good tenants since it would cost more for the unit to sit empty for a month than they would make in a full year at the higher rate.
Just because you can’t find units offered on the rental market right now for $1,000 a month doesn’t mean there aren’t people paying that. However, here are a few listings I found that match the general description in the post:
That being said, even if you run the numbers at $1,500 a month rent steady for three years, Couple A still spends less on rent ($54,000) than Couple B spends on interest payments alone.
Alan » Jun 9, 2009 at 4:14 pm
By The Tim @ 46:
I’ve always thought of this site as therapy for those who are adversely affected by the state of the housing market. On the way up, it was people like myself who felt like they were being priced out forever. This was a little island of reason that helped me see I wasn’t a spoiled snot who just wanted everything to be handed to me on a silver tray and that in reality there were a lot of people acting very irrresponsibly.
Now that the market is falling, maybe the tone of the site should be to give hope to people who did buy at the top of the market, help them see this isn’t the end of the world, and a lot of other people made the same mistakes they did.
The Tim » Jun 9, 2009 at 4:17 pm
By AnoneMe @ 58:
I totally agree. Thanks for sharing your perspective.
RE: Alan @ 62 – Interesting take. I like that idea.
Rojo » Jun 9, 2009 at 4:40 pm
RE: softwarengineer @ 54 –
Let us see how much lower are your utilities. How much do you pay for gas+electric/month during Dec-Mar?
mukoh » Jun 9, 2009 at 5:13 pm
By sead97 @ 55:
If you are going to compare investments my coin collection has gone up 600%+ since the 90s. And that is not even taxable.
Buying a house as an investment is not what it is about IMO. OWNING a house is the point. True maybe renting is cheaper. However rentals that I own, is not a good place for family exactly. When I was in my 20s that was a different story.
garth » Jun 9, 2009 at 5:14 pm
Where are all these $1000 a month utilities included town homes in ballard? I don’t see anything close, even on craigslist.
Rojo » Jun 9, 2009 at 5:27 pm
There might be pieces of crap available for rent in crap neighborhoods for 1000 including utilities but if you want a decent place to live with 2 bedrooms in a decent neighborhood, you are looking at 1200+utilities. Now if you go to places that everyone wants to be in like Fremont, Queen anne, capitol hill, you could end up paying 1500-1800+Utilities for 2 bedrooms and 2000-3000 for 3br and bigger.
With the prices down 20% and more, the rental vs. mortgage is less apart than it was a year ago.
I have enjoyed your posts so far Tim but this post just doesn’t do it for me. The data you have presented doesn’t add up and it seems like you are just full for glee today in trying beat a dead horse with incorrect data and comparisons.
olaf » Jun 9, 2009 at 5:32 pm
In 2005, when we were trying to decide whether to rent or buy, there were very, very few nice three-bedroom houses or apartments available in this city for less than $2200/month. We ended up renting, and I’m glad we did, but that’s a factor you have to keep in consideration: During a housing bubble, anything decent (and a lot of not-so-decent stuff) is for sale, not for rent.
The fact of the matter is, families who wanted to live in a decent house in Seattle almost HAD to buy. Singles and childless couples had a good stock of 1-2BR’s to choose from, but families were up a creek. It’s a little better, today, as house-owners who don’t want to sell have started renting. But it’s still hard to find a bigger rental place that isn’t gross.
mukoh » Jun 9, 2009 at 5:53 pm
RE: The Tim @ 61 – So since we are comparing apples this unit MLS 29047593 is seemingly better then your third example. Taking into account some people wish to not do a down payment $289k at 5.75 is $ 1,686.53 a month + Insurance HOA which takes care of all the maintance on the outside of the unit is lets say rounded to $2k a month. HOA also includes garbage, water/sewer. This is of course without negotiating a unit like this down to $250k or putting 20% down. Which would even out the payments basically.
However in your rental examples if people like living in an alley with a garbage dumpster view $1k a month is a savvy choice, saves lots of money. Hell you can rent mobile in SnoCo for $700 a month and have 1500 Sq ft and a yard to play with.
mukoh » Jun 9, 2009 at 5:54 pm
RE: garth @ 66 – Yeah I have been searching on craigs list for these townhomes for $1k a month, haven’t found them. Will keep trying.
David Losh » Jun 9, 2009 at 6:23 pm
RE: Alan @ 62 – RE: Dave @ 19 –
The rational for the “priced out forever” buzz words is that a property is worth whatever some one is willing to pay for it. No one said you had to pay asking price. I never have.
The bottom has already come and gone. It was called a global economic collapse or fondly referred to as a credit crisis.
Banks gave away money, lot’s of it. You either got some money, or are paying for the ones who did, or a little of both.
These Real Estate discussion always favor the people who rent and portray the people who bought as paying too much.
I agree with the idea that a site should help the people who own. Many people did pay too much and surprisingly people today are paying way too much. It just seems to be a thing people like to do.
One of my biggest questions in all of this is how banks, or mortgages, got to be such a big part of Real Estate. Banks are satan incarnate whose only function is to steal as much money as they possibly can.
We use the banks money for as short of a period as possible but do secure it with a 30 yr fixed loan. The only reason to use the money is because Real Estate has been pushed up so much in price by the thieving Real Estate agents and Mortgages Brokers, or so people tell me.
So I know that people can buy smart and pay off the loans. I’ve done it twice in my life and will do it again. Along the way, I agree, people need help.
Herman » Jun 9, 2009 at 6:33 pm
RE: Dave @ 19 – The bloggers on this site will not predict the upswing. The bias is on the negative. But Tim presents enough data that you will be able to make your own decision.
Herman » Jun 9, 2009 at 6:44 pm
RE: John Smith @ 39 – Wow, that story is chilling. That guy is really trapped. He just made one mistake and blew ~10 years of productivity, lifestyle, and/or freedom no matter how he deals with it.
He has just enough to have too much to lose.
Herman » Jun 9, 2009 at 6:52 pm
RE: AnoneMe @ 58 – You are way too rational to post here. Could you at least insult a real estate agent or something?
AnoneMe » Jun 9, 2009 at 7:21 pm
:-) @ Herman
Working on it!
E » Jun 9, 2009 at 7:36 pm
RE: mukoh @ 65 –
Actually, coin collections have higher capital gains tax rates than stocks.
What The Heck » Jun 9, 2009 at 7:52 pm
RE: softwarengineer @ 54 –
No HELOC dude. That’s like spending the money you’re gonna make on employer granted stock options before you leave the restricted period and actually excercise. I’ve had a couple do OK and a couple more that are just nice wallpaper for my office.
Sounds like you’ve done well. I hope to sell someday and will be looking at housing similar to yours for some property I own in E WA. Glad to hear you’re enjoying it.
It was hard to accept the time value of money/savings when I was younger. Now that I’m approaching 50, I’m glad my Dad and Mom (who grew up in the depression era) pounded the approach into me. I went totally into cash in 2005. Missed some upside, but all of the downside. It’s all about “pay as I go” and a good nights sleep.
Hey if you’ve got friends, sleep well and your health, what else is there really?
mukoh » Jun 9, 2009 at 8:22 pm
RE: E @ 76 – EconE even when i sell them to other collectors without using consignment auctions? Really? Which section of IRS tax code deals with that?
The Tim » Jun 9, 2009 at 8:36 pm
RE: mukoh @ 78 – It would appear (to my non-legally-trained eye) that he is correct.
TITLE 26 > Subtitle A > CHAPTER 1 > Subchapter A > PART I > § 1 > (h) > (4) and (5):
408(m) defines “collectible” as (emphasis mine):
Where or how you sell it would seem to only be relevant to the question of whether you can get away with not reporting it on your tax return.
EconE » Jun 9, 2009 at 8:53 pm
RE: mukoh @ 78 –
If you play by the rules…yup. Same goes for gold & silver bullion, art, antiques etc.
“17) How is the gain or loss upon sale treated for tax purposes?
For collectors and investors, rare coins are “capital assets†(see Internal Revenue Code Section 1221); therefore, any gain or loss upon their sale is treated as a capital gain or loss. Such gains or losses are reported on Schedule D of the individual’s Form 1040 tax return. “
http://www.usrarecoininvestments.com/investing/how_to_invest.htm#Q17
http://www.taxalmanac.org/index.php/Sec._1221
mukoh » Jun 9, 2009 at 8:57 pm
How they are reported by the seller is their responsibility to be in complete compliance with all the compliance laws of IRS sections. Totally agree with you on that.
Groundhogday » Jun 9, 2009 at 8:58 pm
By olaf @ 68:
That has been our experience as well here in Pullman. Houses that were renting for $1000/mo sold for $250k, and now the accidental landlords are trying without success to rent them out at $1500/mo (still alligators even at above market rents).
EconE » Jun 9, 2009 at 9:05 pm
RE: The Tim @ 79 –
Wow. You were fast.
I had no Idea that they had alcohol on that list. I just stocked up on a bunch of Stolichnaya…and I hardly even drink.
pfft » Jun 9, 2009 at 9:22 pm
what if you pay a down payment on a house with gold? what are the taxable events then, if any.
Civil Servant » Jun 9, 2009 at 9:24 pm
From what I’ve seen, at various times, there is a lot more variance in the rent one can expect to pay for a given type of unit than in the price it would sell for. This makes sense because a landlord who owns the property outright can afford to be a little more choosy, in addition to the points Tim makes at #61. Four years ago I had friends who rented a large 3br townhouse on Capitol Hill for $950. Six or so years ago, other friends lucked into a $1200 rental in Madrona, a house on a big lot that had a fire pit, roof deck, and ridiculous views of the lake — in that case the hippie landlord expressly said that he didn’t need the money (he’d inherited the house and lived in the Methow) and preferred to rent to a young couple who worked in the arts or education and shared his political and social views as a way of giving back to the community. My friend’s son and some buddies rent a large house in Wedgwood for $900. Etc., etc. I guess I’m surprised at those who are calling b.s. on Tim’s “Couple A” assumptions, which seem to me lucky on the part of the hypothetical couple but not at all unreasonable.
Groundhogday » Jun 9, 2009 at 9:51 pm
By Kary L. Krismer @ 57:
Except that going forward, lenders aren’t willing to go along with the people who value real estate more than they value their financial health. And a whole lot of people valued real estate so much that they won’t be able to borrow ANY money for the next 5-7 years. That pretty much cuts out most of the folks who valued real estate more than us bubbleheads. :-)
LUC » Jun 9, 2009 at 10:05 pm
Mukoh,
I currently rent a 695/mth 1 bedroom in a 4-plex in Magnolia and it’s not in a alley. In fact it’s across the street from townhouses selling for more than 600K.
mukoh » Jun 9, 2009 at 10:32 pm
Luc, thats great.
what goes up must come down » Jun 9, 2009 at 11:11 pm
mukoh you seem to be “above” living some place besides QA, Capitol Hill, Fremont, hmmm maybe you should take the other part of the example and try to find a house to buy in the locations for the value used in the example, you must be special.
EconE » Jun 9, 2009 at 11:17 pm
RE: pfft @ 83 –
I’m sure it could be done…but Uncle Sam would get his cut regardless I’m guessing.
The gov seems to like to know the whereabouts of gold.
On a similar subject, the etf’s GLD and SLV are treated like the metal itself WRT taxes from what I have read.
If that’s the case, I’d be willing to bet that many of the people that traded in those ETFs will get a supplementary tax bill as they probably figured that it was the same as a stock.
mukoh » Jun 9, 2009 at 11:37 pm
RE: what goes up must come down @ 88 – WGUMCD, Not above anything. Just comparing the examples to what is reality for rent to a $400k townhome and not seeing anything in $1k a month range.
David Losh » Jun 9, 2009 at 11:38 pm
RE: The Tim @ 79 –
Very nicely done.
My first Real Estate sale was to a couple who had silver coins for a down payment. The husband kept claiming he had thirty thousand dollars in his closet.
By the time we got them out, sold them, and yes, paid taxes he had like $10K. It was enough for a $50K house near Green Lake, but it was a shock.
He had to pay taxes to show where the money came from. No lender likes having money appear from no where.
Scotsman » Jun 9, 2009 at 11:44 pm
Our tax code at work. I’ll be so happy if they ever go to a flat tax on all income. Alcohol is a collectible? I wonder how they define collectible verses consumable? If I sell you a case of wine from my basement at a small mark-up, is that a gain? Do I get to deduct storage costs? Where does it all stop?
David Losh » Jun 9, 2009 at 11:55 pm
RE: mukoh @ 90 –
The rental number has been asked and answered. It’s an example.
I didn’t catch the answer before, but you were the gentleman sitting to my left at the meet up.
mukoh » Jun 10, 2009 at 12:11 am
RE: Losh @ 93 – Yeah. Collectibles such as old Hennessey, and old Dom bottles I have seen sell with contents of course for $2k-$5k a bottle. So I guess uncle sam thinks thats a huge gain to hold a $20 bottle from 1940s and sell it in 2009 for $2k.
ALWAYS REMEMBER AS TIM REMINDS US PAY TAXES ON ALL YOUR COINS, GOLD, SILVER, LIQUOR.
David Losh » Jun 10, 2009 at 12:27 am
RE: Scotsman @ 92 –
It stops at losses. You have the right to lose money. There is nothing that says you have to be good at business to be in business.
I’m going to tell a story about myself because it may put some perspective on my comments. Most of my Real Estate dealings are done through other people. My friend Dan once introduced me as the guy who got people to buy Real Estate for me. That’s true.
No mortgage lender, until recently, and never again, would make me a loan. I’m a high risk borrower who loses money.
I work all the time. Everything I do is for my business. My main business is David Losh. My dogs are tax deductible. I need them to protect my junk cars. My junk cars are tax deductible.
The tax code is the most cumbersome set of law in a country that has so many laws that what you are doing right now is illegal. You are, as you have pointed out before, doing something illegal, right now.
The beauty in all of this is that the law is selective. Laws are selectively enforced. Even if some one were to look at me, I have nothing. Most, if not all, of my business is done through other people. Why not? People are what matter the most.
David Losh » Jun 10, 2009 at 12:42 am
RE: mukoh @ 94 –
Collectibles used to be one of my main investments.
You may be implying that private sales are non taxable events. Like wine, once some one buys it, and drinks it, it’s gone. In that case the collectability is lost forever.
Tax is a cheap price to pay for verifiable funds and property.
You need to sell to another collector for the coins to have value. That collector needs to show where the coins came from, like a pedigree.
The kid down the street may think a coin is cool, but to get real dollars you need to sell to some one with money. People with money like to be sure the coins come with a bill of sale to show they are come by legally.
EconE » Jun 10, 2009 at 12:57 am
By David Losh @ 96:
Exactly…except I think that the IRS doesn’t care if it’s a private sale. They still want their money.
I’m a coin/change/metal collector/hoarder myself and personally would prefer NOT to run afoul of the IRS if/when I sell my “hoard”. In fact, I’m having trouble locating the receipts for some of it and it’s quite disconcerting. It’s not that I’m worried about anyone wondering how I “came on to it”…I just don’t want my cost basis to be ZERO. :::grumbles:::
I’m betting that some of the jobs that are created by the .gov will be IRS jobs to get all the people that have “Ebayed” their collectibles over the last 5 years to pay up.
The government wants people to consume, not collect.
Collection slows the velocity of money. That’s why we have forced obsolescense with many of the things that people consume. Look at electronics…be it computers or home entertainment gear. The junk from China is almost seemingly made to cr@p out as soon as the warranty is up.
what goes up must come down » Jun 10, 2009 at 1:41 am
Americans and there crap — buy more crap, rent a storage locker to store crap, buy more crap, rent a bigger storage locker and on it goes.
transplantella » Jun 10, 2009 at 2:11 am
RE: The Tim @ 46 – RE: what goes up must come down @ 98 –
I/we are neither sellers nor buyers. I read this site for entertainment and to gauge the economics of Seattle and the US in general.
At any price, for any kind of tax deduction or incentive, or in any kind of market, at any kind of interest rate, I/we will NEVER again buy property in this country.
I could care less whether the neighbors respect me for being an owner nor disrespect me for being a renter.
NEVER again in my lifetime will I:
repave the driveway
pay to re-roof a house
buy a new hot water heater
replace worn out appliances
install a new septic tank
fight the tax assessors office
I/we have owned several properties in several states over the last 25 years. I will never again be fleeced by the real estate industry, government, property market, or repair contractors. Free! We are free of all of that and if I have to live with landlord white walls and the renters inability to keep horses an mules in my bathroom as I see fit–so be it. Who cares?
Our kids are gone, I don’t need a yard, my wages are mine to spend as I see fit not to dump in a stream of upgrades and repairs and and endless upwards spiral of taxes on a house. No, no more. Cabinets can be old, new, white. Countertops can be granite, laminate, concrete–I don’t care. Just_don’t_care.
The American dream has lost its grip. However I can live cheaply and move to make more money is my primary interest. The less I own the better off I am.
If as I suspect, there are more people like me in the ‘market’, the US real estate industry is in for a very serious long term crash. We don’t need you any more and we’re done paying our dues.
A room is a room is a room.
what goes up must come down » Jun 10, 2009 at 5:59 am
OH NO, how can it be Seattle not in the top 10 of best places to live in the US:
http://finance.yahoo.com/news/Best-Places-to-Live-usnews-15476164.html?.v=1
say it isn’t true.
Kary L. Krismer » Jun 10, 2009 at 6:18 am
By Groundhogday @ 85:
Well that’s one possible future, but probably an unlikely one. Banks are very unlikely to give up opportunities to make money loaning money to people. That’s what they do. That’s why people with 10 credit cards who are carrying $45,000 of credit card debt used to be able to get an 11th card. That might not be possible now, but I strongly suspect it will be possible again in the future. The banks play the odds, and part of the odds are what I call the musical chair part of lending, where one bank jumps in and then gets paid off when another one jumps in.
Kary L. Krismer » Jun 10, 2009 at 6:20 am
RE: EconE @ 89 – Well first, I don’t think many/any escrows would take a direct deposit of gold.
But second, no matter how you trade something, the tax consequences will be the same. Now there might be something you could do to try to hide the transaction, and not report it, but I wouldn’t recommend that as a course of action. In fact, I’d strongly advise against it.
Kary L. Krismer » Jun 10, 2009 at 6:25 am
RE: what goes up must come down @ 100 – They “looked for affordable communities . . ..” Accordingly they only found smaller towns to be the best place to live. There’s not a major city on the list. And smaller cities in Washington probably didn’t have the vibrant economy that they were looking for.
Racket » Jun 10, 2009 at 7:10 am
RE: transplantella @ 99 –
“Our kids are gone, I don’t need a yard, my wages are mine to spend as I see fit not to dump in a stream of upgrades and repairs and and endless upwards spiral of taxes on a house. No”
Uhh you pay the taxes when you rent, your pay for repairs when you rent. The rental market has been crazy lately, but in past rental markets the taxes go up, your rent goes up. Repairs are typically priced into the cost of the rent.
I also get the benefit of writing off interest, and p taxes.
David Losh » Jun 10, 2009 at 7:26 am
Just to finish my thought process: Real Estate is one of the best ways to lose money. In the past ten years, if I even thought I might make money, I would buy a house.
Groundhogday » Jun 10, 2009 at 8:40 am
RE: Kary L. Krismer @ 101 –
You obviously haven’t seen the recent foreclosure stats. Sorry, but the banks won’t be lending to these folks any time soon. But you can keep hoping for a reflated bubble.
Herman » Jun 10, 2009 at 9:09 am
RE: Scotsman @ 92 – A flat income tax will never fly. It reduces the ability of the .gov to manipulate us through tax incentives.
dogwood » Jun 10, 2009 at 9:13 am
RE: SeaBuyer @ 21 –
Perhaps. But you assume that the renters are “renters for life” not renters saving for a big downpayment to puchase when prices are lower. If that downpayment is big enough and the entry point low enough, the current renters may be able to handle a 15 year fixed mortgage no problem, and wind up actually owning their house much sooner than their “owner” counterparts.
And just because you anticipate the counter argument that the renters have been saving and investing the difference between PITI, doesn’t mean that this is not a completely valid criticism of your analysis. I know several couples that are strapped for cash because they’re dumping it all into the mortgage. And they act like saving for children’s education and their own retirement is some sort of “luxury” that they just can’t afford right now. This is nuts.
chaz » Jun 10, 2009 at 1:13 pm
RE: The Tim @ 10 – I just want to know where you can find a 2bd townhome for $1,000 in ballard. Currently looking for a place, and going rate for 2bd apts south of 70th seems be closer to 1200-1400….
The Tim » Jun 10, 2009 at 1:14 pm
RE: chaz @ 110 – See @ 61 above.
softwarengineer » Jun 10, 2009 at 2:05 pm
RE: Rojo @ 64 –
HI ROJO:
I have Puget Power, not City Light. Let’s put it this way, my house is all electric and my winter house bill(s) were less than my girlfriend’s Seattle 800 SF 2 bdrm apartment.
ROJO, also: unlike a lot of utility users, I crank my thermostat to 72 degrees 24 7s. I have a special needs adult living with me, so the washer and dryer are on constantly.
Electric use isn’t just the bill, just like your gas milage on an identical car isn’t necessarily my gas milage [I generally get about 30% less gas milage than car owners claim they get for the same car when I drive it myself].
Let’s put it this way, my old McMansion in Bellevue ate twice the energy costs my newer fuel efficient one eats now. I’m the same user, so its comparing apples to apples.
Rojo » Jun 10, 2009 at 2:19 pm
RE: softwarengineer @ 112 –
I guess the reason I ask is that McMansion or not, energy costs are depending on use habits and construction/insulation quality. My current house >3000sf has lesser bills than my older house house half its size (both constructed in the last 10 years). I pay ~200/month on gas+electricity costs. I am interested in finding out if that is good or bad – that is why I asked. Btw, I have dual fuel system with gas and electric.
sead97 » Jun 10, 2009 at 2:52 pm
By mukoh @ 65:
Perhaps you should change your screenname to slumlord ;)
softwarengineer » Jun 10, 2009 at 3:40 pm
RE: Rojo @ 113 –
HI ROJO:
The way I’ve seen a lot of this glueboard housing get slapped together lately, it doesn’t surprise me, Hades they may of used no insulation on the energy pig and got it by the inspector with a wink and a nod [and a $100 bill in an envelope]….LOL….that sheet rock in new house construction from China lately was a real joke, horrifying toxic fumes.
But all things on a flat table, if you’ve got a big cathedral ceiling and more air to heat, it looks wonderful, but pull out your wallet come winter and it gives you no extra space to live in. Build a house with half the SF [and half the air to heat] and the same insulation quality, I’m positive you’ll get about half the heating bill with the same utility company. I’m an engineer and its pure thermodynamics.
Where you can really get cheap winter heat….get an upstairs condo surrounded by neighbors…LOL….heat rises.
Groundhogday » Jun 10, 2009 at 3:48 pm
By softwarengineer @ 115:
In Bozeman, MT we rented an attic apartment with a massage therapist below who practiced in her apartment. One relatively mild winter we never had to turn on the heat. Even in the coldest winters we had monthly bills (electric resistance heat) of $40 at the peak, including lights and stove.
John Smith » Jun 10, 2009 at 5:09 pm
RE: softwarengineer @ 115 –
Mr. “software”engineer, thermal loss does not scale linearly with floor square footage. It is HIGHLY dependent upon square footage of “exterior walls” (is your house an irregular shaped, rambler, basement, etc.), the number of windows and skylights, physical orientation (open south or west facing exposure), roof to square footage ratio (i.e., rambler vs two story) and a whole host of other items. Even if all things were even, I highly doubt that a house with twice the interior volume to heat would have twice the heating bill. It may take twice the energy to initially heat 2x volume house, but maintaining the temperature once you have heated your house to 72 degrees comes down to thermal loss (radiation + conduction + convection) through the walls, ceiling, and floor–this most certainly would not track linearly with 2x floor space or even 2x interior volume.
I took advanced thermal dynamics (and statistical mechanics which is the study of thermal dynamics at the quantum level) in college and while I agree with your astute observation that it is “pure thermodynamics” it is not trivial thermodynamics.
mukoh » Jun 10, 2009 at 6:02 pm
RE: sead97 @ 114 – Every successful landlord has slum properties.
cutienoua » Jun 10, 2009 at 7:55 pm
RE: transplantella @ 100 –
Thanks! You put my mind at rest now! I was wandering if paying $1700 a month for rent is a wise choice !
Scotsman » Jun 10, 2009 at 8:11 pm
Speaking of using coins or gold to cover escrow, etc., here’s clever guy who was trying to use gold coins to pay for purchases based on the value of the gold, but use the coins face value for tax purposes. DOJ is after the whole lot of them… and on the INTERNET to boot!
http://www.lvrj.com/opinion/47141327.html
aaaaaaaaaaaaah » Jun 10, 2009 at 9:57 pm
RE: Scotsman @ 13 –
Long time lurker, first time poster. It makes me sick to read this, but it is so true. The responsible person ends up holding the bag.
Garth » Jun 10, 2009 at 10:50 pm
I rented in seattle and on the eastside from 1997 until 2006 in 7 or 8 different apartments, and can say that circumstances and timing as well as month to month leases can cost you a lot of money and irritation. I just don’t think it is common to get out for under 1200 with utilities for a 1 bedroom or 1600 for a two bedroom apartment in the nicer areas of seattle or the eastside over the long run. The best deal I had cost me twice as much as I had saved as when it was over asI had to quickly find a new place to live in bellevue during the internet bubble and rates had shot up. (The new place I found quickly also had a neighbor with torrets who yelled out the c word every time someone knocked on my door)
Sure, there are lots of people here and all over the city with great rental rates, and just as many paying too much, but there is always a catch to any good rental deal, which is usually stability and the lack of a lease which allows them to get rid of you as soon as it is advantageous for them.
I used to love my month to month lease, now it would be a huge potential liability for me.
EconE » Jun 11, 2009 at 12:22 am
RE: Scotsman @ 120 –
That was a funny read. The goldbugs coming to his defense are absolute knuckleheads. It’s so easy to see where he ran afoul of the IRS. Not to mention…if he was paying them with GAEs as legal tender at their $50 face value then he’d be breaking the law WRT minimum wage laws.
You could still trade gold for a house if you wanted. Shoot…you could even trade a dang collection of Elvis collector plates for a house if you wanted to. It’s just a matter of paying the taxes correctly.
IMHO…why bother trading gold for a house? Just use dollars. That’s what they are there for. Keep your gold forever as generational wealth….until they confiscate it again. ;^)
…and ditch the Elvis plates.
Kary L. Krismer » Jun 11, 2009 at 6:40 am
On the issue of cost of leasing ($1,200, etc.), I think the best way to do this comparison would be to look at rents in a condo complex–one that doesn’t have any major legal issues overshadowing it, and that qualifies for FHA.
The thing is, perhaps you can find a place to rent for $1,200, or a house in King County for $175,000. The question is though, would you want to live there? By using condo units you could do an analysis in different price ranges, and the “neighborhood” would be a neutral factor (although you might have view, condition or other location factors that could affect the result).
seattlerenter » Jun 11, 2009 at 9:55 am
By transplantella @ 100:
Could not agree more. The housing obsession is hopefully over for good. Why people can’t see counter tops and finishes do not make a happy and comfortable home, the state of mind of the inhabitants makes a happy home. evan in a rented home.
You're skewing the numbers » Jun 11, 2009 at 3:47 pm
RE: mukoh @ 53 -
I agree. I’m looking for a 3 BR house with a decent yard in a decent school zone (I’ve got two small kids) in Seattle, and I haven’t found anything even remotely acceptable for less that $2,400 a month. Maybe my standards are too high, but I doubt it. I’d like to see this post’s scenario re-run with a more realistic rent, like, say $2,500.
David » Jun 12, 2009 at 1:41 am
I think Scotsman hit the nail on the head with regard to what is “advisable” or “a good life choice”.
Preserving one’s opportunities needs to be balanced against setting down roots and building community.
I am saddened to think how many people are trapped in krappy or unfulfilling jobs for financial reasons. Ethical people who are upside-down come to mind.
On the other hand, once you decide to settle somewhere, if you can afford a house and have enough flexibility to support it (e.g. if you get laid off, you are able to do something else, or have chosen modestly), then I think the rest of the discussion is moot. Whether or not you could have made a better investment decision is a 2ndary question, if you have created a home and are not trapped.
Very interesting discussion. Kind of like a psychological mirror…