Working it Out in Different Price Ranges

I got a pair of emails this weekend that are worth discussion. Here’s a portion of the first:

…we’re looking at buying a townhouse as a temporary place to stay. Our income is pretty good, more than 100k a year.

But the math that’s involved in figuring out all the possibilities of whether its better to rent or buy (we’re renting at $1800 a month right now) is sorta complicated, especially considering the number of unknowns.

The second was from a 23-year-old looking for their first home:

…not being able to afford the minimum 400k condo (or 600k houses)… Is there any place for me to look where I can find postings and debate this healthy on homes in the 200-300k range? (which I guess is obviously not in downtown or on the east side.)

While the “real estate is local” cliché is certainly true, it is also true that even in a specific local region, the market for high-priced properties for sale or rent will be quite different than the low end of the market. When we plug the numbers for rent vs. own type scenarios on here, we typically do numbers close to the median / average, where it’s still easy to find a rental for 50-75% of the cost to buy.

What have you been seeing out there in different price ranges? Are there some price ranges where the numbers actually come out in favor of buying in today’s market?

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About 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. Tim also hosts the weekly improv comedy sci-fi podcast Dispatches from the Multiverse.

86 comments:

  1. 1
    Lake Hills Renter says:

    Buying a condo as a temporary place to stay seems risky to me in any market, but downright suicidal in this one. Is renting really so loathesome to some people? There are arguably more nicer rentals now than there have been in a long time. Why not rent temporarily?

  2. 2
    victorchai says:

    $1800 , I guess you must be renting a house, if u have a 5% down, u can afford a $450000 townhouse according to some of our “nice,high class,friendly,welcoming realtor”, and don’t worry, u prob missed the ” Jan. bottom”,now with the “July bottom” going on, u can’t miss it! What? AUG? U don’t know that the price is going upupup, so better hurry to catch that train… U %@#$

  3. 3

    MY ADVICE IS HANG TOUGH AND KEEP RENTING

    Unless you have a 40-60% down payment and can stomache a likely bad investment, at least your loan shouldn’t go upside down on you in a year or two.

    Proof of my advice, it isn’t just job wage stagnation, consumer sentiment and commodity price surges ruining Seattle real estate…..the banks hiked interest rates by about a 1/2 point in just the last week:

    Example loan rate from actual example bank:

    30 Year Fixed 6.42% 6.09%
    15 Year Fixed 5.94% 5.63%
    1 Year ARM 6.30% 6.20%
    30 Year Fixed Jumbo 7.42% 7.19%
    5/1 ARM 5.85% 5.51%
    3/1 ARM 5.70% 5.39%
    [the small number was last week]

    I see this as a trend, not an anomaly. You could make a deal on a house for 7% interest and by the time it takes to close; you theroretically may no longer qualify, as the interest rate suddenly went up to 8% [and the unit’s price collapsed some more too].

    Things are happenning fast.

  4. 4
    Bella says:

    For the condo people, I can’t see any reason why you’d want to buy temporarily right now. They can get a great rental for $1800. I suppose when talking about condos, there are so many out there that you should be able to get a “deal”, but then what do you do with it when you are done with living in it temporarily? Doesn’t seem practical to sell, and renting it out seems like just an bad an idea.

    For the guy looking for houses in a lower price range, it looks like after a bit of searching, I am about to buy something in Greenwood (a desirable neighborhood) $340k. I was really looking for something in the 200-300k range (the less expensive, the better, really) and there are some decent LITTLE houses out there for that price. But when you need a family sized house in this area, the ones that have enough square footage are in crappy shape, so we are paying a little more for something we can live in right now, and do some fixing up on as we go.
    If you are a single guy, or a couple with no kids, you can find some really cute (but small) houses in that price range.

    From what I have observed as a person who was looking for a lower price range home, prices have dropped slowly but steadily over the last 6 or so months. Maybe they will drop more, but we decided to act on a house that we really like, especially before getting a loan may get even tougher.

    But, if you’ve got a down payment and good credit, I would think you’d be okay if you decided to watch and wait a little longer. Prices certainly don’t seem like they will shoot out of range in a month or even 6.

    There are also a lot more homes in slightly less “hot” neighborhoods – Broadview, Haller Lake, Columbia City, etc. I was very specific about where I wanted to live, so someone who is more flexible may have a much easier time finding something. Good luck!

  5. 5
    Buceri says:

    Buying RE as temporary? Wow, I agree with LHR; risky at best, plain stupid (“suicidal”) in this market.

    Same advice for both people: read this blog, look at the charts, rent cheap, and save, save, save, for that down payment.

  6. 6
    Mama says:

    yeah, both emails could provide more info. I’m not sure what the folks renting for 1800 rent but it’s either a pretty nice condo, or a house. I doubt they can buy anything comparable (in the same/similar neighborhood, same size)…

    For the 200-300K person — if you’re single and looking for a studio condo, even Capitol Hill is flush with them (esp. coop buildings). The rule of “drive till you qualify” also still applies — there’s a fair number of things in Kenmore/Renton showing in the low-mid 300K range.

    Then again, why buy now — it’s definitely not a good “investment” and at 23, other than having a great dane or a mastiff or several kids, there’s little that makes renting inconvenient. I’d wait to make sure you still have a job in 6-7 months (i’m suspecting the younger among us are not hte most indispensible :( )

  7. 7
    david losh says:

    “People in the United States don’t want to be inconvenienced. They want to start where thier parents left off. Few children see the struggle that the parents had before they met, got married, then started a family. They are spoliled by the incredible wealth they have today.”
    Those are the ramblings of my 91 year old father. He is so on target many times and I value his wisdom.
    There have always been $200K houses and many more today now that builders don’t want to hold inventory of future building sites any more. These are small houses. One seller I was talking with last week did the cost analysis for tearing down to rebuild or adding on as a remodel. Remodel was cheaper.
    He was saying a young couple could buy his house, in a great location, for $280K, remodel to add square footage, and resell for a profit.
    People don’t want to make sacrifices for housing. People don’t want to trade up. Many of the people here on the Seattle Bubble blog make fun of the trading up concept, but it’s what I did, it’s what my dad did, and his father before him.

  8. 8
    Gill says:

    I don’t think buying anything with the idea of it being temporary is a good idea right now.

    We bought a townhouse in Ballard in May at 6% fixed for 30 years but we’re planning on staying for at least 5 or 6 years. No way we would have bought if we were only planning on staying for a year or two. You’d get caught pretty badly right now because most people believe (including me) that interest rates will go up in the near future. I personally think prices in Seattle will level out toward the end of this year but even in that scenario, which is seen as very rosy around these parts, you’d not be better off buying in the short term.

    Speaking of which — Tim, have you done any neighborhood by neighborhood comparisons lately?

  9. 9
    Rob says:

    This one is not hard for BOTH writers: Continue renting.

    It will be time to buy when pretty much everyone, including your butcher, tells you that only a fool would buy real estate. We’re still a few years from that level.

    However, if you are willing to find someone that is willing to sell for half the “current” market value, you might want to jump on it. Personally, I would STILL wait.

    In the spirit of “buy low and sell high”, if you have real estate, SELL NOW. If you don’t, stock up on currently record breakingly cheap dollars. IOW, save for a down payment when house prices start rising from an OBVIOUS bottom. We are nowhere near there yet. It’s not even a light at the end of the tunnel.

  10. 10
    Everett_Tom says:

    People in the United States don’t want to be inconvenienced. They want to start where thier parents left off. Few children see the struggle that the parents had before they met, got married, then started a family. They are spoliled by the incredible wealth they have today.

    I’ve heard this a few times, and I find it frustrating. Why? Let’s assume those “kids” (I’m about 30, so.. in that range). did just what you’d suggested. (as I did about 5 years ago). I bough a small house (2 bed, 1 bath) in need of work in CA. I lived there for 4 years. In that time I did as much work on it as i could, remodeling one of the bedrooms, adding gas heat (it had been all electric), replacing windows, etc.

    What happened? The house bubble popped. I was barely able to sell it for enough to walk away with anything. If you account for the money I put into it, I lost money. If you account for the time I put it into it, I lost money big time. If you compared it to renting, well. let’s not talk about that.. my dentist says that gnashing my teeth is bad for them.

    If housing had stayed at its historical pace, I would have been able to use that house to move up. As it was, I almost got stuck deciding between living there for the foreseeable future, or taking a foreclosure.

    Trading up only makes sense in a market where housing cost are going up, not down.

  11. 11
    Garth says:

    The cheapest month to month rental on craigslist is not always a great number to use for the purpose of comparing rent to own.

    Most of the time when people are looking to buy a house stability, pets, yard, children, lifestyle, etc are all factors. To me the biggest thing that affects all of the factors is stability, and a month to month rental does not provide much of that.

  12. 12
    Buceri says:

    David – I will not argue with your father’s statement, in fact, I agree.

    But I disagree with your “generational” trade up argument. Most people in your dad’s age group lived their whole life in their first home (the one they bought shortly after marrying).

    Only 30 years ago, the American house was 1500sq.ft., and very roomy. Moving was triggered by job related relocations; and not by “wow, this kitchen is tight”. If your father does not laugh at today’s family of four “outgrowing” a 2200sq.ft. house and “needing” a 3 car garage, he was probably in a non typical financial situation.

  13. 13
    mukoh says:

    IMHO a lot of people don’t want to rent is because rentals are typically not as spiffied up and with as many comforts as a property that has a live in owner. Even homes that are rentals and were built for that are just horrid.
    My associates build rentals it is vinyl siding, vinyl floor, fake mouldings, cabinets are photo finish plastic, fermeica for days, a stove that fits3 items with difficulty, a fridge that you need to restock every 4 days as it is small, and neighbors banging on your ceiling. And people rent them for $1+ a foot in todays market.

  14. 14

    You should buy that condo NOW!!…assuming you want to lose your down payment in the next year and pay rent to the bank instead of a landlord. The good part is when you pay rent to the bank, you also have the LUXURY of paying taxes, insurances and being responsible for all repairs. yippie.

    Seriously, keep renting. Put the money in AAA bonds…wait a year (or two)…and buy the same house/ condo for much less.

  15. 15
    Bella says:

    On the note of the person wanting to buy a house in the 200-300k range – yes, at the age of 23, you’ve got plenty of time. However, if you have a down payment and have your ducks in a row to buy (good employment, some other stability, etc) why not buy while you are young, get started early?
    I wish I had been able to buy a house when I was 23! In fact, I wish had tried to buy a house then whether I was really able or not. Perhaps I’d be in a lot better shape today.

  16. 16
    budbrad says:

    O/T alert-

    There are homes in Broadhurst, a former Street of Dreams development, with unmowed grass now over 2 feet high.

    Foreclosed? Off-the-market and deserted? WTF?

  17. 17
    GregXiu says:

    I know that people here are cynical about the housing market here, but for different reasons, not that I dispute either of them. I do have a few questions.

    First. How far down will the housing market go here? It has only come down a little, not like is has in most other metropolitans in the country. That makes Seattle not a Buyer or Sellers market, but rather a “Landlords” market.

    Second. Will they raise interest rates? It will lower inflation, and the cost of oil(& gas prices at the pump) but will further depress housing prices bigtime(even here). 20-25 years ago interest rates were traditionally about 7-8%. Housing prices would look like they did in 2000 if not lower if they did that. What do you think?

    Do you agree?

  18. 18
    AndySeattle says:

    David Losh said: “Few children see the struggle that the parents had before they met, got married, then started a family..”

    Uhh… Yeah. VERY few. Please name one child that saw their parents before they met.

  19. 19
    disbelief says:

    Buying a house temporarily!? HA! What do you think this is, 2003! I would argue that there are enough “knowns” to make this a no-brainer.

    Do you understand what caused the housing bubble? If you do, then you will understand that house values will not go up any time soon, even in Seattle.

  20. 20
    Madrona says:

    @ Bella, #15
    “In fact, I wish had tried to buy a house then whether I was really able or not. Perhaps I’d be in a lot better shape today.”

    I’ve heard this a number of times as well from older friends and family (40s/50s+). They wish they had stretched a bit further when buying their first home, especially if they end up living there for 10+ years. This is understanding each of their incomes grew year by year.

    Anyway, just an anecdote I have, take it for what it is…

  21. 21
    Everett_Tom says:

    I wish I had been able to buy a house when I was 23! In fact, I wish had tried to buy a house then whether I was really able or not. Perhaps I’d be in a lot better shape today.

    I did buy a house at 23. . . I did strech as much as I could..

    it was over rated.

    (Though my parents did the same thing when they were young, and it’s worked out very well for them… The market when up during their ownership.. and down during mine. )

  22. 22
    Madrona says:

    @ Everett_Tom, #21,

    I wouldn’t consider living in a home 4 years long-term. To me, a big part about home ownership is being content with remaining in the same location (baring life-changes such as changing jobs, etc) for at least 10 years.

    And, on an overall note, home-ownership should be treated more as shelter and a place to live rather than a piece of a portfolio. If you stayed in your CA house longer term you would be no worse off now than if the value remained high if you were committed in staying for the long term. Potential profits / losses only directly affect you when they become realized (financial terms, not vague philosophical talk).

  23. 23
    Bella says:

    Madrona,

    When I was in my early 20’s, I thought houses cost SO MUCH MONEY.
    I wish there was any way I could have known back then that the house I am buying now was CHEAP by comparison back then. Of course, I had always expected a house to cost a little more when I was 30 than when I was 20, due to normal inflation but I will be paying $180k more for the same house now than I would have if I had bought it when I was 20-25. That is a LOT. How much would my monthly payment have been if only I could have bought the same house back then? $1000?
    I can only dream of paying so little, it almost makes me cry to think about it. Plus, I would be close to halfway to having paid it off! Or I could have started with an even smaller, less expensive house and traded up!

    But when was younger, I just didn’t know. Thank goodness I do make 3x as much now as I did then.

    And of course, after telling that story, someone will say that it’s good for me to buy now because my house will be twice as expensive 10 years from now as it is today, but it seems like we had a 10-15 period in the 90s and early 2000s where housing prices really skyrocketed and I don’t see that happening again.
    But only time will tell.

  24. 24
    Sorin says:

    One thing to consider when buying a house and selling it: there is a total transaction cost of almost 10%. Figure about 4% in taxes and loan origination fees to buy, and the 6% real estate comission to sell (ignoring for a moment discount brokers and FSBO, where you alternatively invest more of your own time). That’s a significant overhead, and even in a normalized market, that alone makes you pretty likely to come out on the short end of the stick if you plan to own a place for less than 5 years. In the current market, it’s almost certainly a bad plan.

    My advise is if you aren’t sure you will be staying put in the same place for at least 5 years, renting is going to be a much better value, and at present, quite a lot cheaper too. Despite what some people claim, there are plenty of nice rentals, includes lots of brand new condos the owners are bleeding money on.

  25. 25
    singliac says:

    @ Mukoh, #13

    My $1200 rental apartment is only 4 years old. My kitchen and bathroom drawers glide open and closed, my appliances all work, there are tons of electrical outlets, a maintenance man fixes things in 24 hrs. Moving into a 1970s rambler means dealing with cottage cheese ceilings, drawers that stick, mold in the walls, and who knows what else. Renting sounds pretty good compared to that.

    I will eventually buy a house, and I’ll enjoy fixing it up to live in myself, but why would I pay twice what I’m paying now to live in squalor? No thanks. I’ll rent until it actually makes sense to buy here. My family of four fits quite comfortably in 950 sq ft. for now.

  26. 26
    Everett_Tom says:

    wouldn’t consider living in a home 4 years long-term. To me, a big part about home ownership is being content with remaining in the same location (baring life-changes such as changing jobs, etc) for at least 10 years.

    I’d agree 4 years isn’t a long time. When I purchased the house, I’d intended to stay there longer. Unfortunately the company I was working for started downsizing. They didn’t cut my job, but they cut enough around me that I wasn’t comfortable that I wouldn’t be next. They’ve since cut an addition 50% of their workforce at that site, and I hear rumors from my friends who are still there that they aren’t done.

    And, on an overall note, home-ownership should be treated more as shelter and a place to live rather than a piece of a portfolio. If you stayed in your CA house longer term you would be no worse off now than if the value remained high if you were committed in staying for the long term. Potential profits / losses only directly affect you when they become realized (financial terms, not vague philosophical talk).

    Yes. a house should be a home. But in today’s market, it can just as easily become a chain. On paper (i.e. compared to houses near me that sold about a year before I sold mine) I went from having $100K of paper equity, to a net of 0. If I’d tried to sell that house today, I’d have had to pay someone to take it.

    My point is this. I’m not looking to make a mint off of owning a home, but I also equally don’t want to be in the position of either going into foreclosure or paying a huge chunk of change if I need to move.

    It’s hard to tell how long it’ll take before that house is back at the value it had when I bough it. But if I had to venture a guess, it’ll be a long, long time…

  27. 27
    Everett_Tom says:

    Just as an FYI. I just checked the Zillow value of the house. Since I sold it it’s dropped $32,000. (I know zillow isn’t perfect, but keep in mind that the estimate it had for my home before was HIGH.. we sold for something like $10,000 or $15,000 less then zillow’s estimate).

    So had I stayed there my best case equity at 5 years (one of the “magic” numbers thrown around a lot) would be about -$20,000 . So much for using it a move up option, or a forced savings plan.. etc.

  28. 28
    deejayoh says:

    One thing to consider when buying a house and selling it: there is a total transaction cost of almost 10%. Figure about 4% in taxes and loan origination fees to buy, and the 6% real estate comission to sell

    FWIW – taxes are 1.8% and they are on the sales end of the transaction, not the buying end.

  29. 29
    Scotsman says:

    The desire to own a home is so ingrained in the American psyche that it’s hard to get past it, even when all the facts are screaming “don’t buy now!”

    The past 100 years show housing prices rising at the rate of inflation, driven by wage increases that rise at the same inflation driven rate. Historically, there is no return to housing as an investment over time, (inflation adjusted, including taxes, maintenance, obsolescence, etc.) there is only the accumulation of equity as the loan is paid down. While this has not been the case for the last 20 years, it is historically true over the longer term.

    Housing prices are now at an all time high above the long term inflation adjusted trend line. They will revert to the mean, or even drop below over the coming decade. There is nothing going on in the economy to suggest otherwise. American wages and productivity are not rising at rates above the current levels of inflation. In fact, they are dropping. Housing prices will follow them down. The bubble will not be back. Buying a house right now, at current unsustainable prices, is an expensive luxury for the few who can afford it, and the fools who can’t wait.

    Remember the Case-Shiller graph? The original went back to 1890- almost 120 years of data. The line was essentially flat until the year 2000. The following link shows the last 20 years:

    http://www.itulip.com/forums/showthread.php?t=2136

    Looking at the link above, adding in some basic knowledge of the current world economic situation with real estate bubbles bursting in many countries, the looming insolvency of many U.S. banks as well as the government itself, how can anyone realistically argue that housing is any kind of a decent buy right now?

    We are entering uncharted territory economically and politically. The past is of no value when it comes to predicting what the future holds. If, as many think, we are potentially on the edge of a very deep recession starting in the next year or two, i would advocate saving all that I could, and getting completely out of debt over buying a depreciating asset. The world extends beyond Seattle, and what happens “out there” will soon enough be felt here. The world economy is like a hanging mobile, everything in equilibrium, and when one part gets moved, the other pieces swing and adjust to compensate. But the process takes time, and has only started.

  30. 30
    WestSideBilly says:

    IMHO a lot of people don’t want to rent is because rentals are typically not as spiffied up and with as many comforts as a property that has a live in owner. Even homes that are rentals and were built for that are just horrid.

    I rent a nice house that the original owner built for himself. It has some issues but in general it is built much better than most of the housing stock in Seattle proper. Is it an exception? Probably. But they’re out there. In looking for both a house to buy last summer and then houses to rent last winter, I found a lot of rentals that were in fairly good shape and a lot of houses for sale that were beat to snot (though with no significant reduction in asking price for the blatant wear to the home). I also found plenty of the flipside. There are good rentals, owned by good land lords. I readily admit I got lucky, but they’re out there at most every price point.

    One of the things I hate about Seattle is the sneer towards renters. It’s prevalent on this blog, especially among some of the RE agents. “Oh, you’re a renter.” A lot of the people here reject RentersAreLosers’ arguments, but a fair number seem to accept his handle as truth.

    The two people who e-mailed Tim are in such obvious situations, the only logical reason they asked was because they don’t want to be in that subhuman group. “Temporary place to stay” is exactly what a rental is. Negotiate a 6 month, or even a MTM lease. Renting at $1800 w/ a 6 figure salary seems like a pretty nice place to be. Plenty left over for investing, saving, etc. The 23 year old person, without knowing their story, is a bit harder to analyze, but life at 23 years old is not typically stable. Not sure why you’d want to chain yourself down at that stage in life.

  31. 31
    matthew says:

    Deep down people know they are making a financially poor decision, but yet they come here somehow expecting to be told that “it won’t be that bad if you buy now if you can afford it”.

    Just go buy your house, take the equivalent 20% percent down payment in cash, put that cash in a field, spray gasoline on it, and light it on fire. If you can handle watching 20% of your home value go up in flames in front of your face, you can probably handle buying a house right now. Otherwise, it’s probably a good idea to sit on the sidelines a little longer.

  32. 32
    Garth says:

    WestSideBilly,

    I don’t think it has anything to do with Seattle, or is a sneer, most people have been renters too, it is just seldom idealized. More than anything it is a matter of the empirical data collected over a long period of time. You never see an episode of behind the music, or behind the glory where they talk about how hard life was when they owned their house. Usually at the end after getting through all the tough years renting they buy a house for their mother. Not quite the same story when you whip out the spread sheet and show how financially efficient the new rental you got her is.

  33. 33
    david losh says:

    This may come as a surprise but I always make money in Real Estate. I do my own market timing and watch what will or will not be a good investment for the future. Of course I want to be able to sell it the day I close for a profit.
    I’m not buying today.
    I do think we are at the bottom. it’s just that most people haven’t come to grips with it yet. It will take a couple of years before the full realization that Real Estate is a slowly appreciating asset will sink in.
    The price of dirt went up, but investors, builders, drove up the price. Now they want or need to unload. They can afford to take a loss or two for all the money they made the past few years. Those are the houses I’m watching. Small houses on big dirt.
    What I object to in this post is the idea some one is thinking short term gain. It’s never been that way unless you are willing to work a deal, a fixer, an opportunity purchase, a quick close cash deal.
    I also object to some one paying $1800 in rent. That must be a palace. When rents get back to $800 to $1400 then tell me how smart you are.
    I see the logic of a declining Real Estate market, with all that means to buyers, sellers, banks, and investors. The point is that if you buy Real Estate it should be with a strategy. Whether you invest or want a family home it should be a deal that makes sense.

  34. 34
    cutienoua says:

    I want to buy a house because I am bored!

  35. 35
    TJ_98370 says:

    Wow cutienoua! Are you for real? (no disrespect intended)

    If you buy a house with financing that is not to your best interest, I can guarantee you won’t be bored, maybe for the rest of your life!

    Buying a home is the most significant purchase most people make in their entire lifetime. Buying a home is not a trivial decision!

  36. 36
    Sorin says:

    deejayoh, thanks for the correction. Yes, I had the weighting wrong, more of the cost is on the sale-side.

  37. 37
    Civil Servant says:

    I dunno, I’m with West Side Billy as far as the sneering goes. It tends to happen something like this: someone asks me where I live and I tell them. That person fixes me with an admiring look and tells me how great my neighborhood is, how he or she would love to live here. “I should clarify, we’re renting,” I say — and then the look of admiration turns to one of pity and I brace myself to receive the inevitable words of, gack, encouragement and hang-in-there. It is annoying. No matter what happens I won’t gloat, especially because so many people we know have bought in the last few years, but I look forward to some measure of vindication, in having my choices acknowledged as choices rather than the sad result of a lack of viable options.

    I can wait, though.

  38. 38
    permagypsy says:

    They didn’t cut my job, but they cut enough around me that I wasn’t comfortable that I wouldn’t be next. They’ve since cut an addition 50% of their workforce at that site, and I hear rumors from my friends who are still there that they aren’t done.
    ——-
    I’m 26 and this is more or less the reason why I don’t see myself buying for at least 10 years. Job stability simply doesn’t exist anymore. This isn’t necessarily a bad thing, because it works both ways, and aggressively switching jobs can lead to big pay increases. If I had to stay at my previous job, I’d be making 30K/year less…

    And so when doing the rent vs. buy calculation, I have to include the imputed cost of being stuck in the same location for years because of my house. In a best case scenario, it means lost pay increases from switching jobs. In a worst case scenario, it could be devastating if I lose my job.

    Basically, anytime I do the rent vs. buy calculation at places like hotpads.com, I include that “cost of staying put” in the maintenance fee of home ownership, and I can never come out ahead.

    The benefits, or perhaps necessity, of having the flexibility to move around are simply too important to give up.

  39. 39

    We are NOT at the bottom. Not a good time to buy for “temporary” OR to settle for a house for less than $300,000. I’d recommend that both continue renting until they can buy something they envision staying in for 7-10 years or more.

  40. 40
    Ray Pepper says:

    Good LORD! American Express after hours!! They are going to get shredded tomorrow. Listening to what they have to say about our debt stricken Americans will be an education for you all. I strongly urge you all to listen to their CC or at least read their press release.

    Ray Pepper
    http://www.500Realty.net

  41. 41
    matthew says:

    Ray,

    I don’t need to listen to an AMEX conference call to know that the debt stricken American consumer is screwed.

    Aren’t you the same guy that chastised me for saying the economy was facing severe stagflation?? What a difference a few months makes doesn’t it Ray?! Turning bearish on us now? Little late to the short game though, you could have been making big money on the short side with me, but that’s ok, there’s still some meat on the bone. Give up hunting for gems and join the dark side Ray.

  42. 42
    Ray Pepper says:

    Nope must have been someone else.. I never chastise anyone. I believe YOU said the economy was facing sever stagflation. I always say the same thing…**Find Your GEM** The stock market for me is titillation. I never place real money in it. I have been bearish all my life and more conservative then you could ever dream to be.

    I would never short any stock for fear of getting my head ripped off the next day.

    As Mark Cuban stated……………..” Never place any money in the market until you become an insider.”‘ Since I have yet to be an insider I continue to swing trade in/out of EGHT, CHTR, BSQR, Q, FFIV, INSP, and about 20 others. Just for fun…

    I will leave the real trading to you. I will stick with what I know. Good Lord! WB will be nailed tomorrow…ouch…AXP…ouch!…SOLD has more cash on the books then its pps…So many GEMS in the stock mkt its scary!

  43. 43
    julie says:

    According to this CNN article, Seattle is #3 most expensive place to own compare to rent.

    http://money.cnn.com/2008/07/07/real_estate/price_to_rent.moneymag/index.htm?postversion=2008071604

  44. 44
    Herman says:

    This is the best thread on SB in weeks.

    So much wisdom and so little trolling.

    I especially like Sorin’s point. The costs to sell your real estate mean that you lose 10% of the value the day you take the keys. For many people, that wipes out their entire down payment equity on day 1.

  45. 45
    Scotsman says:

    What? Amex customers are defaulting on their debt? I thought they were only the cream of the crop?

    Here’s a tid-bit with some local flavor: the Barrier Auto Group, i.e. Barrier Mercedes, Audi, Porsche, Volvo etc. will no longer accept your personal check for parts, service, or purchases. Credit cards, cash, and cashiers checks only please. And you thought all that money in Bellevue was real……….

    I’m looking at houses in my neighborhood that, (based on the square foot asking prices of new construction) are probably worth half of what people hope to sell them for. How blind do you have to be, to not look down the street and see what your neighbor is asking (and not selling), then price your old crap even higher?

  46. 46
    what goes up comes down says:

    Bella your dream of buying at 23 and having a great return could be applied too numerous other investments. I wish I would have bought MS at 23 they were just starting out and now I would have been retired. So maybe the idea should be too look at wise investments at 23 for the long term and right now that would not be housing.

    If I was 23 and had some play money and could let it ride for 5 or 7 years I would be looking at finacials they have been beaten down badly and guess what there is not much risk left since our fearless govt. will never let them fail — see the free market isn’t so free.

  47. 47
    david losh says:

    We have hit bottom. Real Estate professionals want to keep doing business as usual and that time has passed us by. We all know the value of property today is much less than it was last year, or the year before, or the year before that.
    It’s over, the market is going back to nornal. All of the money has been shaken out. If you got yours great.
    There are many strategies for today’s Real Estate market. It’s different from what you have learned in the past ten years. You can make money today or for your future if you are realistic about pricing, condition, and potential growth.
    Stay far away from condos or town houses, but dirt is plentiful and getting cheaper.

  48. 48
    dogwood says:

    My wife and I live rent a nice 3br house in Maple Leaf and pay $1300/mo, utilities included. On Zillow, it peaked at $800k and currently stands at $715k (with at 30 price change of -$8000). The property taxes alone would be $420/mo. The owners do all repairs promptly, and we take good care of the place.

    We pay 11% of our pre-tax income for housing. Friends tell us we’re foolish for forgoing the great ‘tax benefit’, but paying so little for housing allows us to fund our 401ks for the maximum deduction ($31,000/year). We also invest (short ETFs, gold, and energy) and stash money for kids’ education (don’t have kids yet). We own our cars (but mostly walk and bus), take nice vacations, have no debt (credit card, student loans, etc.). We take nice vacations and have saved over $150k for a downpayment on a house when the time is right.

    All our neighbors know (or want to know) about us is that we are renters. We’ve lived here for 4 years. Only a handful of our neighbors know our names. (One actually introduced us to a visiting friend as just “the renters”. ) The fact that we live well (despite being part of the dreaded renter underclass) has convinced at least one neighbor that we’re growing pot in the basement (we’re not).

    I would be silently smug if it weren’t so damn sad. Is this what the “American Dream” does to people? It’s just gross.

  49. 49
    Scotsman says:

    Congradulations, Dogwood- you will win it all in the end.

    David losh- you are delusional. How can this be the bottom if ” dirt is plentiful and getting cheaper.” By your own admission, this is not the bottom.

  50. 50
    disbelief says:

    Mukoh # 13

    “IMHO a lot of people don’t want to rent is because rentals are typically not as spiffied up and with as many comforts as a property that has a live in owner. Even homes that are rentals and were built for that are just horrid.”

    HA! I think that’s rationalisation no. 121 from the Delusional Realtors Handbook.

    #122 btw, is flower beds cultivated by an owner are allways more fragrant than those tended by renters who simply don’t put any love into them.

    Oh, and I live in a rental that was refurbished for the express purpose of being a rental, and it constantly turns heads and gets comments on both the outside and inside/furnishings.

  51. 51
    disbelief says:

    … admiring comments that is!

  52. 52
    jesse says:

    I continually hear stories of owners complaining at how expensive homeownership is. Trips to Home Depot, gardening, repairs, gas to transport all the materials, all are underestimated by even those with seasoned financial acumen. It can on the surface appear to be cheaper to buy then own but dig into a real owner’s operating expenses and suddenly renting looks a whole lot better.

    Remember that landlords need to make a profit so in normal times the total loaded costs of owning will be cheaper than equivalent rent. I would say a back-of-the-envelope buy-vs-rent calculation should include another 5% fudge or so in additional expenses involved in owning. After factoring in the true costs, owning should normally be a few % cheaper than renting on a monthly basis. (i.e. a condo that rents for $1800 to a good stable tenant should cost an owner (interest, taxes, repairs, transaction costs, etc.) about $1700).

  53. 53
    magnolia44 says:

    wow Dogwood happens to rent a 800k home for $1300, and he was invested in all short etf’s and gold. Basically everyhting that has gone up…

    Whats the weather going to be tomorrow dogwood?

    Did you happen to be heavy financials last week? Let me guess you rode oil down from $150?

    lmfao

    Plenty of Monday morning quarterbacks here to join the ranks with, many here cant lose and pick everything just right. We all know every renter here invests the difference and it all goes into (whatever happens to be up, god forbid a renter claimed he is down 10% due to his allocation in the various sectors it would never happen).

    Guess what we have a mortgage payment, the 401k’s are down about 12.5 % and dumping $$ into home improvements. The sun will rise tomorrow and it does not hurt to tell the truth.

  54. 54
    Civil Servant says:

    David, I have all respect for the boldly opinionated, but are you so sure that we’ve hit bottom that you have no qualms about declaring so in a public forum? If I bought a house with you tomorrow based partly on your assurances and it depreciated something like another 10%, I would be furious, and I would share my opinion of your expertise with everyone I know. You don’t worry about that at all? If not, hats off to your confidence, and, as an analyst both by profession and by constitution, I’d love to see your models.

  55. 55
    Civil Servant says:

    … but I wish we renters didn’t feel pressured to defend said choices (me @ 37 above) by making sure people know that we do too make lots of money, we do too have big down payments ready to go, we do too go on lots of vacations, etc. Not to pick on Dogwood who obvs. is smart and thoughtful and disciplined, and sorry if it seems that I am, this is just something I’ve been thinking during a few recent comment threads. When we do things like that, are we not acceding strength to the arguments of this site’s most fragrant trolls — i.e., renters are defensive about having to rent and about having missed the real-estate gravy train, and those whiny bastards will be poor forever?

    Maybe I’m totally off base here. I am from the east coast and even God I’m Old years later, it still weirds me out how casually forthcoming people are out here about this kind of personal financial data. I am often dubious that it helps anyone or that it serves a necessary rhetorical function. But I may be wrong! I may be a prude! Also, a friend of mine, a very young single schoolteacher, will be in the market for a condo as soon as the market settles down. In the meantime she’s doing research because she too is smart and thoughtful and disciplined, and I’d hate for her to feel like this site is not for her because her down payment doesn’t rate, that she is of lower caste.

  56. 56
    jonness says:

    My thoughts on when is the right time to buy a house:

    Greg Perry recently commented: “Value is more a feeling of satisfaction for the exchange of goods and services in relation to the $$ exchanged. Value is hard to quantify, but the consumer knows when they receive good value and when they don’t.”

    We all perceive value differently. What is worth half your salary to you might only be worth a quarter of my salary to me, and vice versa. This big question around here is “when is the right time to buy a house?” The answer to this question depends on how you personally perceive value.

    What do you really want out of life? Write it down on a piece of paper. Then figure out the house buying strategy that best fits your desires.

    Buying a house right now with my limited down payment and income does not make sense relative to my ultimate desires. I should continue to save a down payment until next Spring and then re-assess the situation. For now, by waiting I’m able to continue saving for a down payment at the rate of $50k/yr. In addition, house prices will continue to fall between now and my next assessment period.

    So make your own list, take your own test, and see where you land. I’m personally opposed to the concept of living well by borrowing large sums of money, thus paying the majority of my salary toward interest. I would much rather live frugally for a spell, save money, and buy with as much cash as possible. For me, it is not about how much a house costs per month. It is about how much I will earn over my lifetime and how much of that I will have to pay for a house. IOW, overall cost of ownership. YMMV

  57. 57
    Lake Hills Renter says:

    I am certainly not financially savvy. I do max my 401k and have a Roth IRA, and am saving quite a bit each month in addition for my eventual downpayment (and getting clobbered by inflation), but I don’t do the shorting thing, or even much investing on my own. I just dont have the discipline or knowledge for it, nor the dedication to learn. I certainly save money by renting over buying these days, but given the choice 4-5 years ago, I would have bought. Unfortunately, I was still getting my financial house in order at the time, and by the time I was done the bubble was in full swing, and I wasn’t willing to pay the prices being asked. I’ll buy eventually, but I’m not playing financial roulette to do it.

  58. 58
    Buceri says:

    Dogwood –

    Fantastic!!!! Just sit tight and keep saving aggressively for that down payment. Just think that, who knows, in 24-36 months you might be able to write a check for the full value of a house.

    One piece of advice – Always fund ROTH IRAs first, then your 401K.

    Best of luck!!

  59. 59
    Buceri says:

    “Wachovia Has $8.9B Loss, Exits Wholesale Mortgage- AP

    Wachovia says it lost $8.86 billion in the second quarter, hurt by a big goodwill charge and an increase in reserves for bad loans as mortgage defaults soar.”

    One banking expert had them on the banking “endangered list” last weekend.

  60. 60

    SEATTLE REAL ESTATE IS RUNNING ON GAS FUMES

    And the fumes are running out, with higher interest rates likely coming to a theater near you soon.

    I read somewhere that even a 2% increase in the “old” 5.5.% rate makes mortgage payments go up something like 50%; but I’m sure you bubble heads can rattle off the amortization formula exact % increase on a 30 year fixed for instance. Bear in mind, even the 5.5% “old” rate bearly kept the Seattle camp fire embers from fizzling out with $300-600K SFHs.

    Down payments? 20% down has been like a carrot that keeps running from almost all the market [remember -5% savings rates just a year ago], by the time a small minority of potential 1st time buyers can save the like $100k; it now takes $120K, etc, etc…..why do you think they came up with 50 Yr fixed, zero down jumbos, ARM increases and/or interest only loans….and other subprime preditor traps? But don’t smirk now that home prices are adjusting downward, if you have the down payment cash; banks have tightened lending requirements, raised interest rates and if your money’s in a bank like Indy Mac [let’s not go there]. But you may declare, “I’m different, I saved a bundle or inherited from Grandma”, etc, etc….doesn’t matter, the majority of the potential 1st time home owners, that can’t save enough in today’s tight money world, still dictate a continuing Seattle price decrease, irrespective of your minority status.

    I was reading in Money magazine about an American household making $100K+ a year and sitting on a $300K home loan with $15K in their 401K; they were middle aged. Forget the house equity or depreciation, “how has that family prepared for retirement”? If you sink your last dollar in real estate and the Titanic sinks; let’s hope you have Civil Servant’s retirement plan……a million dollars in a 401K at 2-3% before taxes won’t pay the $300K noose loan.

    Get the picture, you’ll never retire until you’re dead. Doing contract work and jumping from job to job chasing a few short term dollars won’t help, “you can’t save fast enough”.

  61. 61
    jcricket says:

    Plenty of Monday morning quarterbacks here to join the ranks with, many here cant lose and pick everything just right.

    Yep – the certainty of the investment wisdom passed out here (I love the advice to “always” fund Roth 401ks first – as if that’s a 100% given) cracks me up. As you said, the markets are down 15-20% on the year. If your money is in a CD/money market it’s not losing principle, but is being eaten up by inflation and taxes. But of course everyone who’s a firm believer in the coming apocalypse bought on the dips, sold on the highs, invested in Gold in 1980 and held it until now (despite 28 years of 0% returns), etc. Oh, and they live in million dollar homes for $1000/month and never get kicked out or see their rental rates rise.

    I suspect that outside the boards, the doom-and-gloomers are like most of us – in that their financial story is one of a combination of luck and smarts.

    We max out our 401k and IRA, live in our in-city home that we bought in 2002 and enjoy our low fixed rate mortgage. We got somewhat lucky with some dot-com options back in 2000, but continue to have skills that provide us a couple of high paying jobs (for how long, who knows?). Oh, and we contribute a fair amount to our kids’ 529 plans most years and have 6 months or so of emergency savings. Despite doing “all the right things” I have no guarantee my money will grow in the market (all index funds), I won’t be laid off, we won’t have to sell our house in a down market, etc.

    As much as this uncertainty and the steady drumbeat of bad news freaks me out like it would anyone, I resist the urge to try and time the market by selling my house, moving my money into gold, oil, cash, etc. – from everything I’ve read that’s a sucker’s game. I’ll just keep plugging away, and refrain from thinking of myself as some kind of all knowing market genius.

  62. 62
    what goes up comes down says:

    sure seems like the number of available properties keeps going up :-)

  63. 63
    what goes up comes down says:

    mag44 you are starting to sound a TAD bit angry, have you zillowed your house since you bought — OUCH!

  64. 64
    what goes up comes down says:

    jcricket, but unfortunately you won’t keep from commenting on others abilities when it comes to the markets, is there a chance they could do it better than you — heaven forbid.

  65. 65
    david losh says:

    It’s over. Read the writing on the wall. You’re here debating what the price of Real Estate is. 10% appreciation has never been normal. 4% appreciation rate has been the rate of appreciaiton used by Real Estate agents since I can remember.
    What are you talking about when you are calling the “bottom?” Are you going to pay full price for a property today? Is there anyone who can read that’s going to believe the market is coming “back?” Back to what? It’s over.
    The first place we are seeing a “normal” market is in the price of lots with small houses on them. Builders, or investors who were driving up the value of future building lots are leaving the arena. Builders buy cheap so you don’t see the massive granite and stainless steel “appreciated” value.
    It’s done. Wachovia? BOA? WaMu? Countrywide? Fannie Mae, and Fredie Mac? What else are you waiting for as an indicator?
    Do you really think that next year the news will get worse? Do you think that some how the news will get better? I think next year there will be the next crisis for everyone to focus on, whatever it may be.

  66. 66
    Buceri says:

    “(I love the advice to “always” fund Roth 401ks first – as if that’s a 100% given)”

    Jcricket – first of all; it’s a ROTH IRA, you keep it even if you change jobs. 401K is what your employer gives you. Secondly, that’s the advice given by financial advisers to most Americans, because of the tax benefit. 1) Fund 401K to take full advantage of the company matching, 2) Fund ROTH IRA completely, 3) If you still have money left over for retirement accounts, go back and put more on the 401K.

    Nothing is 100% sure. You just do your best.

    And by the way, it’s “principal” not “principle”.

  67. 67
    Big Mike 34 says:

    Please Don’t Try to catch a falling knife….You may miss the absolute bottom by waiting but that is far better then buying too early and starting out underwater….I wouldn’t buy anything until the fall at the earliest Condo, townhouse, or free standing home

    In your price range Maple Valley looks like a good place to eventually buy. If it is not too long a commute . The builders seem to be sitting on lots of new construction that they need to move….beautiful house’s on smaller lots in the $350 to $450 range (big houses in the 2600 to 2900 Sq ft range)

  68. 68
    Sniglet says:

    The decision whether to buy or rent is a simple one: if you find a home/condo you like and are financially prepared to accept a possible 50% price decline a few years after you buy it, then by all means go ahead and buy now. There are lots of quality of life reasons to own your home, and I highly recommend it (having owned two houses myself).

    However, if you feel that it would be the end of your world if the house you buy were to drop 50% in value in 5 or so years of purchase, then you really should stay away from the market. The reality is that real-estate prices have been known to have significant swings both up and down, and you have to be prepared to handle that. At this particular point in time a substantial swing to the downside is the greater probability (seeing as how we just experienced the swiftest, and longest period of price appreciation in US history).

    So, just look at your own financial situation and ask yourself if a 50% price decline is something you can stomach.

  69. 69
    dogwood says:

    magnolia44 and jcricket,

    I’m not going to get into a pi$$ing contest here. And I don’t claim to have some kind of crystal ball – just some college-level econ, an internet connection and a sense of curiousity.

    In 2003, I just found it really hard to swallow that I could get a $350k mortgage with 5% down. So I checked out John Talbott’s book, “The Coming Crash in the Real Estate Market.” It scared the hell out me (and that was in 2003, before things got really out-of-whack). Talbott makes an extremely well-reasoned argument for a crash in housing, predicts how it will start, and how it will play out. And he does it without being a gloom-and-doomer, without the hype.You might give it a read – his predictions about Fannie Mae, Freddie Mac, mortgage lenders, publicly-traded homebuilders, and the value of the dollar were absolutely dead-on.

    And jcricket, I never said I rent a million dollar home for $1000/mo. I said that I pay $1300/mo for a house ‘valued’ at $715k on Zillow.

    So I’ve made different choices than either of you. I see housing continuing its decline and Reagan-esque stagflation for years to come, and I’m trying to make the best of it.

    And Mag44, to answer your question, the weather in Seattle tomorrow is going to be mostly cloudy with a high around 70F, with increasing darkness as evening progresses.

  70. 70
    Bella says:

    @45
    You have a point, for people who were looking to make more money, and yes, making more money on stocks would have been a way to have more money towards buying a house. For me personally, I would not have invested money in Microsoft, not because it wouldn’t have made me money, but because that wasn’t my goal.
    To me, a house is not an investment. It is my home. It is the place I will live for as long as I wish, perhaps until I die. I have pretty much always made enough money, but what I didn’t realize when I was younger was that I probably was making enough to buy a house if I wanted to. Real estate wasn’t all fun and games then, like it was a few years ago. I didn’t know anyone who knew anything about home buying and it was a daunting process for someone in the early 20’s.
    It was something that I thought I’d have to wait until I was 30 to do, when I’d saved up “enough”. By the time I had “enough” (when I was around 30) prices were so high, that I refused to buy a house. I am not a half million dollar house kind of girl. That is excessive to me. Even if the house were huge, or had a great view, or came with a maid, I still wouldn’t have bought it. It’s like the cardboard box someone was talking about the other day – just because someone says it’s worth X, is it? Or is it really still just a cardboard box?
    Of course, a home is the most important thing you’ll ever buy, but I just didn’t see paying that much as being a good idea – for me.
    I am a simple pleasures kind of person. I don’t need a $300 bottle of wine. I’ve had many that were $50 that were good enough.

    So, anyway, buying stock wouldn’t have made a huge difference for, because I’d have been trying to make money there towards a house. I’d have more money that way when I was “ready” than I did, but houses still would have been so expensive that I would have said no.
    And I am glad that I did. I am glad that I waited. Sometimes I think I should wait a little longer, to see if I could a similar house for a lower price, but I am also not one to pass up a reasonable opportunity when I feel like the time is right.

  71. 71
    mukoh says:

    QUOTE
    “IMHO a lot of people don’t want to rent is because rentals are typically not as spiffied up and with as many comforts as a property that has a live in owner. Even homes that are rentals and were built for that are just horrid.”

    HA! I think that’s rationalisation no. 121 from the Delusional Realtors Handbook.
    END QUOTE.

    Disbielief, there is always rentals that are what you state. But 90% of them are kept as pure rentals which are cheap to build. When my partner built a 20 unit rental row in Edmonds his costs were 30% cheaper then if he was building them to sell. You could literally smell the carpet from outside it was so “fresh”.

  72. 72
    been there says:

    FWIW in their earnings presentation today Wachovia Bank indicated they believe housing prices will now bottom in 2010 (See page 15 in the presentation.)
    http://www.wachovia.com/file/WB2Q08_Presentation.pdf

  73. 73
    jcricket says:

    1) Fund 401K to take full advantage of the company matching, 2) Fund ROTH IRA completely,

    Which is different than fund the Roth first. And despite the 401k being “what your employer gives you”, you can always take it with you (roll into another 401k or into an IRA) whenever you leave – it’s never your company’s property. The only exception being that the company match might have to vest, but your contributions are always yours.

    At any rate, many people do advise investing the way you say, but many do not. First of all, 401ks have no income limit. Second, the Roth is a hedge that your taxes will be higher in the future (which they may or may not). Third, 401ks have much higher limits than IRAs. And fourth there are now some employers offering Roth 401ks (further complicating the matter). The Roth, of course, has the advantage of allowing you to invest in anything, whereas your 401k choices are limited based on your employer’s plan… My point isn’t really to disagree fundamentally, but that it’s more complicated than “always invest in your 401k first” – it’s situational.

    cricket, but unfortunately you won’t keep from commenting on others abilities when it comes to the markets, is there a chance they could do it better than you — heaven forbid.

    It’s not “me” you’re claiming to do better than. It’s the market, and over time. I’d bet dollars to donuts that nearly all anonymous commenters on any Internet message board/forum who claim to regularly beat the market are simply lying, or choosing a very short time period where they are right. It’s like everyone who made a killing day trading during 1998 and 1999 (and then promptly lost their shirts in 2000 and 2001).

    When you’re right over 15 or 20 years (btw, none of the currently cited permabears have been historically) then perhaps we can talk. I think Bill Gross and Warren Buffet (both buy and hold guys) are some of the few who can claim to have “beaten the market” for that length of time.

  74. 74
    Sniglet says:

    To me, a house is not an investment. It is my home. It is the place I will live for as long as I wish, perhaps until I die.

    I couldn’t agree with this more. Buy a house because you want a nice place to live, and make absolutely sure you can afford it. That is why I keep recommending the 50% rule: if you can’t afford to have your house depreciate 50% then you shouldn’t be buying.

    If it turns out that a given person could NOT stomach a 50% price decline then it is also a sure-fire sign that they are buying more for investment reasons than just for quality of life issues.

  75. 75
    mukoh says:

    Investments wise everyone has their own strategy. Having a mix of low risk/bonds/stocks/commodities and ETFs is good. I have been balancing my portfolio for over 8 years with domain names.

  76. 76
    Scotsman says:

    July 22 (Bloomberg) — Merrill Lynch & Co. economists clipped their forecasts for U.S. growth, making revisions that they described as “adjusting to the new reality.”

    “Just like consumers, who are insulating their windows and making fewer trips to the malls, we are adjusting our economic forecasts to the new high-oil-price reality, not to mention the latest round of trauma in the mortgage markets,” New York-based economists Sheryl King and Drew Matus wrote in a report.

    The chart of the day shows the quarterly change in U.S. gross domestic product in green, with the annualized figure in red. Merrill now expects the economy to contract by 0.5 percent in 2009, after previously forecasting growth of 0.5 percent.

    “We expect GDP to plummet 2.5 percent in the fourth quarter, and see a similar decline in the first quarter” of 2009, wrote King and Matus. “With the consumer likely to remain under duress into 2009 and inflation fears likely to abate, we continue to expect the Federal Reserve to cut interest rates early next year.”

  77. 77
    economist says:

    Buy a house because you want a nice place to live,

    A house is an investment because it is a place to live. You are making an investment when you spend money now to obtain a future benefit. The future benefit of owning a house, of course, is the value of the accommodation (market rent).

    An investment is not something you buy just because you think you call sell it for more later. Many investments have no resale value at all.

  78. 78
    NotaBull says:

    “My point isn’t really to disagree fundamentally, but that it’s more complicated than “always invest in your 401k first” – it’s situational. ”

    Jcricket, you’re absolutely correct in your evaluation. It’s not as simple to say “always fund the XXX first”.

    Take my situation. I’m married and firmly in the 33% tax bracket. I have a nice house, but it’s no mansion. In fact, my plan is to pay it off in under 15 years and move to a cheaper town, earn less money, have less stress, etc. In other words, it is my firm expectation that my future tax rate will be lower than my current tax rate.

    Therefore, I am fully funding both 401Ks (31K a year) in order to bring my AGI down. Then, the home interest deduction adds up to enough to bring me below 33% and into the 28% bracket. The rest of my spare income is going towards paying down the mortgage at a higher rate than my 30 year payment.

    Then when I move on and earn less money, I’ll do the Roth thing – I’m limited by my income right now. In fact, I believe that you can convert some IRA money to Roth IRA money starting in a certain year (2010?). Not sure of details. I’m considering taking a year or two off after the mortgage is paid off, and so those years would be excellent candidates to convert IRA money (from 401k) to Roth IRA money, with no contribution limits assuming the law doesn’t change. If I’m going to pay tax on my retirement contributions I’ll do it at a time when my tax rate is lower, and this is something I can plan for.

    I don’t claim to have it all figured out, but just want to demonstrate that situations exist that require a little more than “always fund the Roth first” approaches.

  79. 79
    Big Mike 34 says:

    Sniglet/ nota

    You are right in that buying a home is something you do for the comfort and convience of your family…For the school system…for the extra room…for the status…..and after you buy you pour money into it…upkeep, taxes, additions, upgrading etc.

    But you can’t excape the simple fact that it is also an investment…..You can but wisely and get all the things you want from your home and eventually get your money back out of it to buy an even better home…OR

    You may be forced to sell because your employer has given you a huge promotion to Atlanta or you get laid off, or any number of other reasons. If you are under water on your house you will lose big-time….and be effected for years.

    The bottom line is you can buy wisely or you can make a mistake that could haunt you for the rest of your life….

    Rent for now…watch the prices and the economy and try to buy at the appropriate time.

  80. 80
    xaos says:

    Funny, I have about the same situation as dogwood above. I am a dreaded “renter” and have heard the neighbors refer to me that way. I am in Fremont by the way. What they do not know is I have close to a quarter a million in investments, and am paying 1/3 what they pay to live in the same neighborhood. I also have no debt AT ALL. All the while having them look down their noses at me. Sometimes I get really angry about it, then I realize they are likely struggling to keep the dream alive so to speak.

  81. 81
    Erik says:

    Can someone weigh in with some data which speaks to the historical relationship between what people are willing to pay per month to own versus what they’re willing to pay per month to rent the same unit? I’ve heard the simple rule of 15 but that doesn’t really seem accurate because it doesn’t take into account interest rates. (rule says if rent is $24,000 per year, the house must be worth $24K x 15, or $360,000) I’m trying to get at what “premium” you can typically expect the market to establish over time for the advantage of being an owner instead of a renter of the same house. For example, on average, will people be willing to put 10% down and then pay $3,000 a month (all in) to own a house that would otherwise rent for only $2500 per month, thus leaving a 20% premium to own (excluding the down payment)? There are pride and tax benefits to owning but also maintenance and upkeep costs. Now that the famous “appreciation” benefit has been taken out of the argument for owning, where does that leave us and does the rent vs. own relationship change dramatically from neighborhood to neighborhood?

  82. 82
    george says:

    Tim’s emailer 1,

    What would it cost to buy the place you are currently renting? Without the answer to that question, there’s no way to answer yours.

    In this market, the rent vs. buying math is pretty overwhelming: renting almost always wins. With the possible exception of some of the overpriced rentals the big realtors are hawking.

  83. 83
    Lake Hills Renter says:

    For what it’s worth, all my neighbors know I rent, and none of them have ever looked down their nose at me. We all chat over the fencelines, I get invited to neighborhood gatherings and such, and have always been made to feel welcome from day 1.

  84. 84
    dogwood says:

    Lake Hills Renter,

    Could it actually be true that Eastsiders are less snotty than “crunchy” Seattlelites? It certainly seems that way to me. Wallingford-Fremont-Greenlake: the axis of ego. Anyways, good for you.

  85. 85
    Lake Hills Renter says:

    I won’t go so far as to make generalizations based on one anecdotal account, evenif it’s my own, but your mileage may vary. Just giving my experience. =)

  86. 86
    WestSideBilly says:

    Erik @ 81 – some light reading.

    http://morris.marginalq.com/DLM_fullpaper.pdf
    http://www.realclearmarkets.com/HowFarWillHousingPricesFall.pdf

    Different methods, same outcome – things are out of whack. Not sure it’ll answer your question directly, though the first one puts the historical average closer to 17:1 or 18:1 and not 15:1.

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