Posted by: Timothy Ellis (The Tim)

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market.

116 responses to “Has “Investor Psychology” Turned Against Home Buying?”

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  1. HFNY

    Renting is great until the landlord decides to increase your rent 10% and you either have to suck it up or move. Moving has it’s own costs and there’s no guarantee that the landlord won’t raise rents after another year as well.

    Basically, there is hard and fast rule in terms of home ownership and/or renting. I rented various places for 10 years after college and then bought a house last fall that had been sitting on the market for two years and had gone into contract and fell out of contract once already but that has been my particular situation over the last decade.

    For renting, my advice would be to expect your rents to increase at the minimum, 5% a year for the next two years, perhaps even 10% if you live close to downtown Seattle. Landlords aren’t in the business of altruism, know that supply is tight until early 2014, and want to take advantage of a lack of units, at least until a flood of supply hits the market in a couple of years. If your rent is $1400 a month for a 1 bedroom, can you handle it going up to $1540 at the time of renewal and then up to $1620 after another year?

    For home buying, I’d say don’t buy more of a house than you need. It’s rather obvious but some people fall for a house pumped up on interior square footage and then kick themselves in the summer time when their yard is 50 square feet but their house is 3,500 sq ft. I also consider a Freddie Mac/Fannie Mae backed mortgage as an inflation hedge. I hate that the Fed Government 3,000 away is involved in the housing market, but I also hate that the Fed has electronically been creating money out of thin air to monetize the debt. If you borrow $300,000 now, inflation will make the burden of paying it back easier. A month $2,200 mortgage payment will remain constant but your salary or earnings with inflate along with general inflation (not at the exact same time since wages are “sticky” and take time to be negotiated upwards to compensate for general inflation).

    In sum, there should be no hard and fast rule about ownership vs. renting. No one has the same investment profile and same portfolio allocation so why should everyone rent now or everyone buy now? Basically, I find the blanket assertions about all of this rather silly.

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  2. Lucas Roth

    I look at buying a single family home as the same thing as renting. It makes sense in some circumstances. There are definitely some foreclosures for sale whose all in costs (mortgage, PMI, insurance, taxes, etc.) would be comparable to renting but only after a rehab (done with a rehab loan of course) and only after clawing your way to the home past all the cash buyers out there.
    An entirely different category is buying a multi-family (2-4 unit) property. I just bought a triplex with my wife. Rehabbed two units already. We live in one and the renter in the other pays our mortgage and PMI. The other unit will be ready in a week or so and will definitely cover insurance, taxes, vacancy, maintenance, etc, etc and put 2-300 in our pocket every month.
    Is it a good time to buy? For me it is hell yeah. I’m scaping together for my next one.

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  3. Pegasus

    Golly you sound just like a hedge fund from New York that is starting to buy rental homes from captured government entities at a steep discount to real value with little or no risk while the taxpayer picks up the tab. You sound just like an investment banker projecting cash flow increases of five to ten percent per year when the renters’ real wages who would pay that rent are declining. Go make your pitch in another city. Maybe one like Vegas where there are tons of gullible people.

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  4. David Losh

    RE: bd @ 13

    The stock market isn’t the only option, and I didn’t say that it was. The post is about investor dollars. Where are investor dollars going to go?

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  5. Jonness

    By Scotsman @ 53:

    Amen! I think you nail it. Some here can’t get it through their heads that a home is more than an investment.

    I disagree. 99% of people here fully understand buying a home is first and foremost a form of mental masturbation often practiced by those without anything else in their lives to look forward to or feel joy about. The other 1% are investors who have hot-looking girlfriends with good jobs.

    And 99% of those who bought into the “house is more than an investment” philosophy back in 2007 will tell you they are dead sick to their stomachs for having wrecked their financial futures.. The other 1% are liars.

    BTW, aapl hit a new record high today, up 3% from yesterday. It’s now at $568, and I’m rapidly approaching a double in less than a year. That will buy a whole lot of mental masturbation that won’t require 30 years of debt slavery to pay for.

    Moral of the story: Investing is a whole lot more than investments.

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  6. whatsmyname

    RE: Jonness @ 105
    Money is great, but it is a means to an end. Without a bigger focus and a greater goal, all the money in the world won’t buy you out of the shallow end of the pool.

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  7. Jonness

    BTW: In the above post, I’m not trying to be insulting to those who want to buy a house. I want to buy a house too. In fact, I’m currently in the market for the house. My point is, people get excited, and they start seeing backwards. The truth is, a truly good investment is a whole lot more than a house. So make sure your house is a truly good investment.

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  8. Scotsman

    RE: Jonness @ 105

    Congrats on your investment!

    A guy I knew like to say that when your fridge is empty and the cupboard’s bare all you think about is food. But when you’re used to seeing both as full to overflowing pretty soon food never crosses your mind and you start looking around to see what else may be going on. Friends, family, your health, causes you believe in, there’s a whole world full of other adventures out there besides wondering if your home is an optimized investment. Bottom line, if you buy something you can truly afford it will never be anything but a pleasure. Not everyone is willing to live in a trailer in their bud’s back yard until all is perfect in the world. But to those who want to give it a try- go for it!

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  9. Jonness

    By whatsmyname @ 6:

    RE: Jonness @ 105
    Money is great, but it is a means to an end. Without a bigger focus and a greater goal, all the money in the world won’t buy you out of the shallow end of the pool.

    I spent most of my life as a starving artist creating and inventing the future. You are preaching to the choir.

    However, I suggest you take a long look at your claim, and ask yourself, if money isn’t all that important, why would you lock yourself into 30 years of indentured servitude just to get your hands on more money than you are capable of earning from your day job?

    The truth is, in most cases, it requires a certain amount of money in order to achieve your greater goal. If that money is nothing more than debt financed by indentured servitude, say goodby to freedom and autonomy and say hello to your new life as a slave.

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  10. whatsmyname

    RE: Jonness @ 109
    I didn’t say money is unimportant. I said money great; just not for its own sake.

    I am frankly unsure how 30 years of mortgage payments makes one more indentured than a lifetime of rental payments. I’ve been here a while. I like my home; I got to live how I wanted, and if it fit in with my plans, I could sell in this market and walk away with cash. What kind of slavery is that? Have I mentioned the people who lived for the future, and then forgot not to have a heart attack first?

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  11. Jonness

    By Scotsman @ 8:

    Bottom line, if you buy something you can truly afford it will never be anything but a pleasure. Not everyone is willing to live in a trailer in their bud’s back yard until all is perfect in the world. But to those who want to give it a try- go for it!

    To each his own. I have my own trailer. Can I move it into your yard? BTW, I have tons of musical equipment that I’ll need to store in your basement. I promise not to practice after 10pm, and I will not play more than 12-hours-per-day.

    Give me the address, and I’ll swing by later. I’ll repay you by providing backstage passes to the main stage at the 2012 Seattle HempFest. Bring your own bong!

    http://www.shol.com/agita/pigs.htm

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  12. HFNY

    For what it’s worth, I meant there is “no” hard and fast rule.

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  13. Scotsman

    RE: Jonness @ 111

    Deal! But you’ve got to play for my summer lawn parties. ;-)

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  14. Colonel Sanders

    By Scrawny Kayaker @ 88:

    To play off Kary’s last post: Colon Sanders sounds like s/he/it hasn’t eaten in five days, but subsists on a diet of Red Bull and Mt. Dew.

    Oh no, I did it again. I ignored your Alinksy ridicule strategy and posted more hard facts — what to do?? Maybe create more aliases and use more unethical, manipulative ridicule? Maybe call the Tavistock Institute for some guidance?

    For anyone wanting to understand the how and why of UN Agenda 21 and its war against private property rights, please check out this information:
    http://www.freedom.org/board/articles/lamb-906.html
    http://www.freedomadvocates.org/articles/private_property/

    Have a nice day!

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  15. Jonness

    RE: whatsmyname @ 110

    It’s interesting how many people equate not owning a house to not being alive. And then a fair amount of others feel that the opposite is true, and as soon as you stamp that microchip into your forehead, you lose your soul.

    I’m not saying don’t buy a house. I’m saying, don’t be a slave to your debt payments. I own a modest home free and clear. It’s a nice way to live. If you spend your entire life making interest payments, you can never know what it’s like to be free from the burden. Since most people aren’t born rich, a good way to pay off the house early is to live frugally and save up a big down payment before buying it. Then buy within your means.

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  16. whatsmyname

    RE: Jonness @ 115
    I’m impressed. In post 107 you want to buy a house. By post 115, you already own one free and clear.

    If paying interest bugs you, you are right not to do it. But you and I will pay something for shelter as long as we live because there is always taxes and maintenance. I don’t mind throwing in a little P&I as well. I’m hardly over-leveraged, and I’m sure there are plenty of bubble readers paying more in monthly rent. I did my frugal years, and I also did a large down payment, and I also don’t want to be caught with no choices, so I’m with you there. But we are both old enough to have known people who were consumed with building their net worth. I don’t want to die with a big bank account and a small experience account.

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