I love Hank Hill, a true patriot!

Two. I am functionally literate in two languages. I’m even able to properly capitalize letters and use ellipses. That’s also beside the point. The Kahn reference is in regard to the shared attitude between that character and our poster. Specifically, their remarks both have an underlying “You people are so lazy. You should work hard like me” vibe to them.

The lesson here is, if you want to call someone out, make sure you’re not going off half-cocked.

-Fran

By buystocks @ 89:

rentRloser’s a.k.a. �Back to basic� entries have been seriously entertaining to read. Rarely do I laugh out loud while reading blogs. More please

I read all of them in the voice of Kahn from ‘King of the Hill,’ which adds to the enjoyment.

how about civility?… how many languages can you speak and write in?

I met with a gentleman this afternoon who is preparing his property for sale. Out of about a dozen people I have met with in the past couple of months, and some we have done work for, he was the most realistic. He has been in his home for 24 years and knows the market is fickle. He is prepared to go on the market at $650K, 2700 sq ft, 5 bds, 3.5 bths, cul de sac, and sweeping views. He’ll do whatever the Real Estate agent tells him and will go lower if the comps show it. The house is in great condition.

There are good properties out there, selling for fair prices. It all depends on the deal.

Best of luck and whatever you decide, never look back.

rentRloser’s a.k.a. â��Back to basicâ�� entries have been seriously entertaining to read. Rarely do I laugh out loud while reading blogs. More please

I read all of them in the voice of Kahn from ‘King of the Hill,’ which adds to the enjoyment.

I thought it was this particular blog that had the problem, but I could be wrong.

Yes, I can’t imagine trying to buy our first home right now… we feel truly blessed.
Yes commercial upheaval and Alt-A’s are also coming up early next year. It is a big part of why I am questioning this. We will only have about 6 months saved after this purchase. One can’t know the future, but you can be smart about it….

Thank you for your thoughts.

This reminds me so much of the way investment bankers and ratings agencies assed mortgage securities during the boom years. Moody’s would look at housing data over the last 40 years and assume that default rates would never exceed a certain average. As well all know, this was a wildly optimistic assumption, and the decades of “data” proved to be worthless in evaluating risk.

To a huge extent I believe that most of the data we have in the post world-war II era is anomalous, and largely the result of government manipulation of the economy (e.g. Fed with interest rates, mortgage tax deductions, GSEs, etc). On top of that, we were in a multi-generational cycle of bullishness (look at Kondratieff theory to see what I mean).

Thus, the very data, and life experiences of most Americans, are not relevant in helping us assess future trends, and what the risk of owning real-estate might be. If we are entering a long-term deflationary depression (as I believe), then there is a new reality altogether, and we will see things happen to prices/earnings/unemployment, that few alive have any experience with.

bit.ly/YlmXD

You are averaging from the last sale into this purchase. That’s fine and you have wrung out those two years of price declines. You could wait and maybe lose a location you want or need to have. Location is everything to life style, no matter what the price.

The cautions here are for those people who are just entering the market who will never have the benefit you have had. It’s unfair, knowing what we know today about national and international financial markets, to encourage people to go out and buy a home.

Today the reports of the defaulting commercial loans are making their way into the news. These loans are expected to continue to default for the next several years. The government is now gearing up to bail out commercial lending.

As a home buyer you would not be that interested, but for some one like Mr. Yun, an economist, those loan defaults mean falling residential prices. That’s what should be made clear.

Thank you S-Crow! I am practicing a lot of deep breathing today before we sign our P/S Agreement tomorrow…

We were not ready to buy quite yet as I agree prices will still go down, but we found a large, practically maintenance-free metal (walls and roof) contemporary home walking distance to everything in town(except some friends’ homes) with land for our boys to play on and where we are going to build a guest home to rent for retirement (and frugal) years. With the current interest rates and the large down payment (that came from the sale of our last home) we can live month to month the same price as a much smaller home in the area to rent and pay our home off in 15 years.

I know we may lose value over the next couple of years or maybe forever, but we also will gain:
–A green environment (no more toxic carpets and paints.)
–A healthier lifestyle (One less car, more biking and walking.)
–A place to let my creative side shine (I love to mosaic tile, paint murals and other interior artistic design , which I have missed in the past 3 years of renting.)
–Give our boys the final home they will live in before they grow into adults over the next 10 years (which they are thrilled about.)
–Be able to grow a huge garden and plant fruit trees to enjoy for years to come.

Yes, I know this isn’t an investment in money, but a choice to stay in one place for the next 10-15+ years, create it as our own and enjoy living in town and close to the ferry to Seattle.

Anyone think I am crazy? Think I should wait?
I would love to hear from you…

(It was this blog that prompted me to sell at the end of 2006… and I am most grateful…)

You need to remember that there is a segment of the population that is recession proof or are actually making good money right now. Bad news is good news for investors.

What is bothering me about the Board of Realtors putting out this propaganda is that most people are not in the “business” of Real Estate.

Most real Estate agents aren’t in the business. They go to some Real Estate boot camps, take some Mike Ferry coaching, take a Mike Watson seminar and off they go with half told tales of how things used to be.

You can talk yourself into anything. People lie with statistics all the time. In my opinion the Board of Realtors should be taking the higher road and warn people about the dangers of owning a home right now.

That is true. A cash purchase of $300K at 4% is $12000 per year or $1000 per month. $400K at 4% is $16K or $1333 per month. Tax, insurance, and dealer prep still makes this a good return.

The problem is that if prices decline 10% you need to make that up in rent. A bigger problem is if other properties drop 10% new investors can rent for less. If there is no appreciation rents stay flat without inflation. Let’s remember the Fed has promised to fight inflation, but a slight interest rate increase would knock the stuffings out of any inflationary activity at this point or even for years to come.

Using the 30% rule of income spent on housing your renter is making between $36K to $47999 per year to afford these low end housing units.

$63K as the median household income is making that a tight fit. $300K gets you the 2 bd 1bth, $400K is the 3 bd 2 bth.

So for me the equation is tipping to a negative. That 4% return is predicated on a lot of luck, of no vacancy, or repairs.

I almost don’t know why you bother trying to convince people.

I rent a condo that was built in the late 1990s and renovated in 2007. I had no problem getting the landlord to agree to a 18 month lease, which also convinced them to drop the asking rent. The previous renter had lived here for over 5 years. Based on the rental vs. sold prices of other units in the building the current price rent is about 25. This is a similar ratio to other area houses and condos on craigslist, many of which were simultaneously for rent and for sale, making the calculation very easy.

Why buy now? That’s what this site is about, right? If prices go down, great. If prices go up or stay flat, it will be better to rent by an even better ratio. Also, high unemployment and stagnant wage growth makes rent increases difficult even as landlord costs rise.

RE: Ira Sacharoff @ 79 –
$1200/month to rent a 3brd house in good area in Seattle? The 13th month rent deposit most likely be taken by landlord to cover the tear and wear repair. Landlord will also run a credit report on you. low credit score, no problem, prepaid 12 months rent 1st. as a renter, you also need to buy rental insurance. Moving around chasing low rent every year is not a fun thing.

You were the one who brought up renting a 300,000 dollar house for 1500. I said it wouldn’t rent for that much. I never stated a location.
You’re right, it’d be hard to rent a three bedroom house in a nice area in Seattle for 1200, and it would be even harder to BUY a 3 bdrm house in a nice area of Seattle for 300 thousand.
I don’t have a problem at all disagreeing with people. I’ve had good discussions with people here who I disagree with. You’re not one of them. If you are a real estate professional, you don’t make any persuasive arguments, don’t display any creative thoughts, and really aren’t contributing anything worthwhile here.

There’s no point in running rent vs buy comp for $1 million dollar homes, very few such homes are rented out.

With 20%-25% down and current loan rates homes in Seattle now cash-flow with I/O mortgage and are close to break-even on traditional products. If you take depreciation into account, for an investor with cash it’s not a bad alternative vs bank’s 1% CD rates.

One thing we have not agreed on is the methodology. The standard way to handle the tax benefit is to use net cost of capital, which also simplifies many of the computations.

Then there is the problem of accounting, discrete entries, versus the continuous nature of time. This can be solved with the correct use of math, but there are still other problems.

Since the $8k is a one time credit, it should come off the purchase price, not operating costs. It’s not an operational issue. If you buy a $300k home, and you qualify for the $8k first-time home buyer credit, then your net cost is $292k.

If you are going to make the argument that the $8k is to live in the home for 3 years, then maybe we should amortize the $8k over the 36 months, but we should not do both amortize the $8k and consider the purchase price to be lowered. [$8k=$225/mo SL-36]

For me the main reason is control. Knowing I’ll never have to move or pay more as the result of the decision of another person is worth a lot.

I spotted an interesting comment today in an unrelated Seattle Times opinion piece:

My property tax now is more—a lot more—than my mortgage payment was when I bought my house 30 years ago.

I’m not saying that the cost of higher property tax doesn’t get passed on to a renter. I just think that taxes and insurance are something that people almost always overlook when they make the “my costs are fixed” argument in favor of home buying.

I have looked at fundamentals in this thread. If someone wants to play the bigger fool game, where you buy high hoping to sell even higher, then just understand the risks. Just because something is priced quite high does not mean that it will return to a normal level in your lifetime, and you do some of your best work during this period. Buying after death does not provide much satisfaction, at least not for someone with my reference.

Did I pay too much for the bottle of Vanilla Cream Soda that I am consuming? Who knows, but I enjoyed it today, just as I enjoyed the product I purchased at Starbucks this morning.

If you buy into a negative leverage situation, but are willing to give something up elsewhere, is that bad? Not unless you are so over-extended in a single area. At this point, the loan-to-income ratios are also out of whack. What’s a good ratio? Three or less, if you ask me. What’s common in the area? I’m going to guess 5 to 6, and higher with some of the liar loans. If the interest rate is too high, then it should be paid off sooner, and if it is too high, then let’s reduce that multiple of three.

I think I will go back to studying hunger and starvation, psychological. For whatever reason when someone ‘hungers and starves’ to be what’s typically called ‘home owner,’ they will do just about anything to be one, much like the older woman who seeks to be a mother.

Now that I’ve got a bit more time, I’ve done a new search for Kirkland, with slightly broader terms, to get as large a sample as possible. To qualify, homes must have a minimum 1,750 square feet (no max) and can have either 3 or 4 bedrooms.

Here’s a list of Kirkland area homes that meet or exceed the square footage requirements set out in the post, found via this search:

• $1,395 / 3br – Kirkland, Spacious 3 BR 2.25 BA Split Entry House
• $1,400 / 4br – Quiet, Heart of Kirkland’s East of Market
• $1,500 / 3br – 2,060 sq. ft. House-Walking distance 2 Downtown Kirkland shops & lakes
• $1,500 / 4br – 4 bed 2.5 bath House with HUGE Garage/Shop
• $1,550 / 3br – Juanita Home with View of Lake Washington
• $1,550 / 4br – 4 bed in great locaion
• $1,595 / 3br – 3 bedroom Single family
• $1,595 / 4br – 4 Bd/ 2.5 Bath, 2,200SF home for rent in Kirkland REDUCED

Average bedrooms: 3.5
Average rent: $1,511

To be fair, we have to broaden the search similarly on closed Kirkland sales over the last three months (but I’ll add a maximum square footage of 2,250 to keep out the McMansions). See the search for yourself here (FYI, without the upper square footage limit the average is over $700k). If you toss out the outliers (two sales over $600k and one under $350k), you get 13 sales with an average 3.4 bedrooms at an average price of $466,916.

new Price to Rent ratio at $466,916 sale price vs. $1,511 rent: 25.8.

Hmm.

Before expenses:

20 ==> 5%
25 ==> 4%

I’d much rather see 8-10% after expenses, but let’s not get into costing principles.

Here is where you put the situation into the negative leverage case: “20% down, 5.5% 30yr loan, 5% return on cash investments.”

There is no reason to go further–pay cash, or don’t buy.

http://kexter.com/index.php?city=atlanta&report=gross_rent_multiplier&

The above site will give you gross rent multipliers for the various areas of King Co (and other data like price per sq ft) based upon Craig’s List Rentals and single family home prices.

Even though you can find rentals in Kirkand as you site above, pdxdave has a point. The rentals are probably not comparable to what you get for 417K in that area. While I acknowledge that in the current market one can always rent a comparable home cheaper than buying (unless you assume certain things like a GRM of about 20, an inflation rate applicable to all items of about 3% and a holding period of about 10 yrs or more) the rentals you listed generally don’t appear to be within the parameters you listed which included 1750 to 2000 sq ft. and are generally closer to Kenmore than Kirkland.

$1349 rental is 1030 sq ft built in 1970 3bd 1bath

$1400 rental is 1430 sq ft built in 1966 3bd 2bath

$1395 rental is 2200 sq ft built in 1976 3bd 2.25 bath

$1375 rental is 1500 sq ft 3bd 1.75 bath

$1300 rental , sq ft not listed 3bd 1bath

The above houses are probably not representative of what sells for 400K in that area. The houses below are in the same area and the prices set forth are listing prices which would generally be several percent more than the sale prices.

29130746 $269,900 1360 sq ft 3bd 1.5bath

29134008 $324,950 1900 sq ft 3bd 1.5 bath

29144640 $299,950 1300 sq ft 3bd 2 bath

29127889 $342,000 1860 sq ft 3bd 2.75 bath

29122448 $329,950 4bd 2bath

just to list a few. And you can get new presales between 2100 and 2600 sq ft for 350K to 380K a mile north in Kenmore at a couple different locations listed under 29118706 and 29135984.

Note: AMS has previously disagreed with me on whether rent vs own breaks even in 10 to 12 yrs on approximately the following assumed facts: a 20 GRM, 2.75% inflation on all items, 400K new house, renter maintains yard, 20% down, 5.5% 30yr loan, 5% return on cash investments. Unfortunately neither of us was willing to spend the extensive amount of time necessary to do the full math spread sheet for that long a period with all cash flows reduced to present values. My estimate says it breaks even at around 10 yrs, his says it doesn’t. In any event, the average younger person probably doesn’t have a 10+ year time horizon and the assumed facts don’t take into account any continued decrease in house prices for the near term.

In any event, unless you’ve found the only house you will want to buy, it probably doesn’t make sense to “fight the tape” and buy into what is likely still a falling market.

RE: pdxdave @ 46 –

Please list the street names where the residential speed limit is respected.

In Fairwood Greens part of our HOA dues goes to paying off duty Sheriff officers. They wright a few tickets and give a few warnings.

I’ll throw in my 2 cents worth:

These are approximate avg Seattle area numbers, albeit they do reflect today’s reality.

Avg Household income (1.2 workers, but its probably more like 1.4 today with more people per household in a recession): About $50K

Net Pay per Seattle household:

About $3000/mo

Maximum Rent the avg household income can afford: 33% of net pay= $1000/mo

Now, I can imagine the landlord types will shutter at these numbers, but they’re hard cold facts and to say the $100K+ households can afford the $2000/mo max rent is probably true, with a caveat. What percentage of $100K+ household incomes are in the rental market? 2-5% is my guess, most of this elite crew already owns a house.

So where does that leave today’s Seattle area landlord, renting to ex-cons and crossing their fingers….LOL…or renting to $50K households at $2000/mo and hoping they don’t need to get eviction processes going from non-payment of rent. See Kary for legal help if this happens…LOL

Its a grim house of cards when wages are low (and getting lower) and housing (rent or buy) is completely unaffordable and off the richtor scale.

For easy math, lets use a 1 Million Sale price:

200k down (loss of any interest that you may be earning)
800k mortage @ 5% (generous) = 40k/ yr
12k in property taxes (also generous)
HIgher insurance
Repairs are my problem.

Total: 60k in debt service/ taxes/repairs with a 13k write off = 47k + 10k loss of interest on money = 57k

Renting: 3000/ mo = 36k year

And most importantly, you aren’t on the hook for depreciation… which is coming down the pipeline.

Its still an easy decision.

Thank you for acknowledging my point ;) !

I think we pretty much agree. For me, personally I haven’t put any real thought into a ‘break-even’ point, as this discussion now is pretty much the first time I’ve considered this method of analysing and comparing prices.

What I can say, is that 2-3 years ago, I did my absolute best to discourage people I knew from jumping on the house-pyramid. Right now though, I’m looking at the market pretty closely, and finding that I could purchase something seemingly better than I’m renting, for not a whole lot more cost. For example, there’s a place that’s I’m entertaining an offer where I would estimate the p/r ratio of about 17 for what I’m willing to offer.

I think the market will continue a slow decline for several years, but I want a house I could live in comfortably for longer than that. The fact is, inflation is a reality of our economy. Collapse or not, give 10 years and inflation will occur. Maybe that’s what it will take just for housing to be back to TODAY’s level. The Japanese style housing crash I don’t believe is a valid comparison because it was inflated light-years beyond what the US market is inflated (ie prices in excess of $100,000 / square foot, not a typo).

Let’s take a piece of property. Clearly at 33 we can agree to rent (if that’s not enough, increase the multiplier until you agree). Clearly at 1 we will prefer to purchase (if this is not low enough, approach zero until you agree). There is a break-even point in the middle.

Naturally, I don’t know the answer to any of the questions, thanks for asking though.

Sure, I’ll settle for 20 being the ratio. I think you’d be making a mistake to buy a house at this ratio, since the market abounds with properties below that ratio, but we’ll call it 20 anyway, you’re right it’s close enough.

However, it’s not 25.2. This is too large of a difference to gloss over, much the way it’s been frustrating to see a REA gloss over the fact that the market was ridiculously overpriced a couple of years ago.

Please refer to my initial post if you’ve forgotten. This was my entire point, unrealistic numbers are being provided.

No it’s not bumper to bumper I-5 traffic.

In the first year the property dropped an additional 10% to $426,295, then after that it appreciated annually at 3%. Year 10 value $556,218.

Umm. Yeah. Sure.

Is the break even point between 18.6 and 20, or is this just a trip around the barn?