Tuesday, February 20, 2007
What's with this title? Its about a little agreement between my fiancee' and myself. You see, that is the difference between our rent and what we expect our monthly costs for a home ownership. We're going to save that amount every month to see if we can really afford the type of homes we want.
Now, I admit that the home is nicer than the apartment we have contracted to rent. Much nicer. Our rent is $1,735/month. Home ownership in total is estimated at $5,544 (with tax benefits getting us $2,859). Ok, you have two analysts getting married... be afraid, very afraid.
For this excercise, we're talking about a $850k home with all of the associated taxes, insurance, and such. Yes, taxes go both ways... that's part of the number we came up with. Maybe you'll assume a different number here or there. $100 either way shouldn't really matter. :)
Do note this is only one bit of monthly expenses. We also plan to save "10%" of net pay too. For that would be our target once we do purchase. The rest of our take home will go to enjoying our honeymoon year. :)
We're cheating a little bit. Estimates for "home repairs" go to the 2007 furniture fund. So this won't be a one for one comparison to the ultimate level. Cest la vie. Close enough. This is only an excercise for her and I. Let's put it this way, what happens if we cannot put $2,859 that month into our "slush fund?" Ummm... we don't. We consider why we missed our payment and then move on.
If we realize this is too much... We have tempered our ambitions. She thinks we can afford a certain monthly payment... I think we should back off about 10%... Most of me hopes she is right. :) If its too much of a struggle? We aim downmarket.
Notice I said nothing about a down payment? That we already have saved. None of this money if for that. It is for a "slush fund" after we buy a home so that life isn't so tight that we hate our experience. We also excluded utility differences, the need to buy appliances, etc. There is money set asside for purchasing stuff around the house, so let's leave it out of the equation today.
1. This is for a home we would like. For a home that we could love is probably too much dinero.
2. Why the lack of cost analysis? Simple, a home will have far more space, etc. As I've noted before, I place a high value on the benefits of home ownership. But that implies a certain level of amenities we won't have in the apartment:
A. Easy parking. Ugh... one thing I dislike about apartment living. Yes, we'll have a garage. That doesn't help with friends.
B. Fruit trees. We love them and enjoy the experience of picking our own fruit.
C. Yard space.
E. Not having to move again for a very long period of time! (We're buying for 10+ years.)
D. Attic space. Oh... we could use a bit of attic space. Already! Yikes!
Besides, I know rent/buy ratios. This post is in another direction.
3. Why not rent a house? For the next year I'm looking at 60+ hour mandatory weeks anyway. I didn't want to worry about yardwork, etc. Yes, that can be bought, but no home that we was on the market with an experienced landlord. Hence, we went for an apartment.
Convieniently, this leaves us out of the housing market until mid-March 2008. :) I'm expecting my current duty to exent until august or so... Then back to Redondo Beach!
Now, isn't this conviently near the Fall 2008 "buying window" I'm expecting. :) Actually, I might have manuevered in job position a little to optimize a bit here or there... ;)
Expect an occasional blog on this. We do plan to live well while saving. This excercise will see if we can really love life at the spending level home ownership will impose.
Again as I've noted so many times.
I cannot lose by waiting (to buy a home).
The housing Bulls who chant "buy now or be priced out forever" probably cannot understand this strategy.
If nothing else, we'll see if we can budget well as a couple without the stress of having to make it every month.
This is HER idea. :)
Not that I wasn't going to suggest something similar... But not right away.
Thursday, February 15, 2007
I'm going to go out on a limb and predict the maximum housing inventory for 2007.
What I've noticed tracking home inventory in 2006 is that the maximum inventory was at the end of September. I also noticed a fairly linear climb up to that point. Well... this year's inventory is climbing at 1,776 homes per day. In fact, it seems that we have enough data to stab a guess... We start with the 933,969 homes on the market today (circa 5:15 pm). I note there are about 227 days to the peak... (I'm predicting it will be a little later) and I get 1.33 Million or so.
Thus, I'm predicting a maximum national home inventory of 1.3 to 1.4 homes per Ziprealty in 2007. This compares with 985,000 I recorded on september 20th, 2006. If 985,000 homes were enough to drop prices a small amount, imagine what another 300,000 to 400,000 will do to seller confidence this year.
That does imply 2008 starts the year with over 1.1 million homes in the inventory... in other words in a deflationary slide.
The difference in slopes is interesting too. 2006 gained inventory at 1,287 homes/day. 2007 is thus growing at 138% of last year's rate. Let's call it a growth rate that is 1/3rd faster. I believe that difference is entirely due to the sub-prime fiasco. Just as home builders start putting fewer homes on the market FB's will take up the slack by listing their homes at wishing prices.
Do read my previous post from today on RE emotions (update). This is a slow train wreck that will take a long time to sort out. However, this time... its different. Its going to happen faster than ever before. When will it end? Good question. I think buying a residence will hit an effective after tax bottom in 2009. I'm not saying that's the bottom of prices, but that after then the integrated forfitted income tax advantage is greater than the lost equity.
We'll have to wait for REO's to get any substantial drop in sales prices. Until then, its a slow steady drop. But just as the inventory hits its September peak... we should have a nice influx of REO's. In other words, double trouble.
Oh... that could mean an even later peak...
So if we see 1.5 million+ homes in the inventory in 2007 due to REO's re-entering the market... dragging the peak into November... I'll admit my prediction was off, but not that I'm suprised. Just as in 2006 forces conspired to keep homes off the market... they'll do so again in 2007.
I'm waiting until well into 2008 to even consider buying. Again, the utilization value on home ownership that I put on a home is high. In that case, one would buy near peak selection and accept missing minimum pricing. Cest la vie. You need to decide what's right for YOU.
The above is a photo on cnn finance. So how much of this will Joe and Jane sixpack need to see before they realize that the real estate market is unhealthy and going to be in deflation for a bit? Peronally, I think we're still on the previous "emotional timeline."
My latest comment on it:
The original timeline by yours truly:
We're approaching fear. Not there yet... (denial is a persistant emotion), but soon. July or August remains my prediction for desperation.
A review of investment emotions.
4. Euphoria (market price peak) Peaked in late 2005/early 2006
5. Anxiety (I'm a long term investor, not a speculator.)
6. Denial Reached in October of 2006
8. Desperation Predicted for July/August 2007
10 Capitulation Could it be summer 2008?
11 Despondency (start of market price bottom)
12 Depression (end of market price bottom) Not before summer 2009 or Later???
13 Hope (hey, this investment has picked up off its bottom)
14 Relief (Its almost what I paid for it...)
15 Optimism (cycle starts again)
Here are the mainstream articles I found very interesting and bearish today:
What's this, posted before the weekend? Will they persist (stay on the front pages)? That I don't know.
Time to do some more apartment hunting (before signing, new discounts were found, so we're checking out new complexes). Now... three new complexes in Santa Clarita with all the amenities... Does anyone else think these were built for sale and then dumped into the rental market? Its amazing how many spare units there are!
Wednesday, February 14, 2007
Efforts by major banks and Wall Street firms to unload bad U.S. housing loans are speeding up a shakeout in the subprime mortgage industry.
As more Americans fall behind on mortgage payments, Merrill Lynch & Co., J.P. Morgan Chase & Co., HSBC Holdings PLC and others are trying to force mortgage originators to buy back the same high-risk, high-return loans that the big banks eagerly bought in 2005 and 2006.
The MSM has awoken to the fact that the MBS market is toast.
Investment-banking firms and investment firms that bought mortgage-backed securities are hiring firms to scrutinize subprime portfolios for loans that violate contracts.
Clayton Holdings Inc. is working with a half-dozen investment-banking firms to identify loans that should be repurchased. Clayton has also been hired by two hedge funds to review mortgage bonds they own for potential repurchases.
The bag holders realize they are holding a "hot potatoe."
Credit Suisse analyst Rod Dubitsky said he expects repurchases to continue to rise for the next six months.
Umm... wait a second. Current repurchases are bankrupting the mortgage companies. Six more months of RISING buybacks?
This means only one thing.
Monday, February 12, 2007
Thought for the day:
1. MBS backed bonds continue to fall at a rate only the most bearish bloggers could contemplate.
2. This is putting various hedge funds at risk (when compounded by the deflation in commodities).
3. One decent sized bank failing would "wake up" the system.
4. Several builders have to be feeling the cash flow pinch; an inopportune failure could push the market down.
So... the question, could we have a stock market drop on February 14Th 2007? If so, I already know the name for the day. I'm thinking that the market is getting nervous enough that one bit of bad news late Tuesday could push Wednesday's stock market down.
This could be interesting... maybe not 2/14/2007, but soon. I haven't "felt" a financial environment like this since the dot com bust.
Due to the time its been since we've last had a 2% market correction in a day... I'm not sure the next one will be a single digit correction. In fact, I'm betting before we see a 2% to 4% correction day we'll see an 8%+ correction in stocks.
Friday, February 09, 2007
Why the blog entry? It amused me to see a MSM article on cashing out and moving
Why? Because I know HUNDREDS of southern California aerospace engineers who need to do this in order to retire at a reasonable level.
Think they'll turn down a transfer to an area where $500k buys a mansion and $400k buys the McMansion on 3/4 acre bordering a forest? Ok, some will. A lot won't.
Oh, the stock market was interesting today. But still no 2% decline in... forever.
Wednesday, February 07, 2007
But one other thing changed. The company is going to offer mortgage assistance. They'll buy it down 50 basis points, pay title insurance, and a few other closing costs. Hopefully this is around in 2 years. :)
This isn't to say my compan isn't moving people out of state. It says nothing about what is happening with other departments or divisions. Heck, the latest rumor is that Boeing commercial satellites is cutting consultants in a big way. Fact? Fiction? I don't know for sure. If you do, please tell. ;)
Saturday, February 03, 2007
The best compromise between my job and my fiancee looks to be Santa Clarita, CA. (Where the 14 and 5 intersect, north of the city.) Any recommendations on the lowest cost way to get an apartment/townhouse? We do not want to rent anything that takes effort to take care of (I've been warned, mandatory 60+ hour workweeks for this new position from late summer on.) Recommendations?
I'll certainly be able to save though in 2007! The new waiver came in, I'm salary yet I'm to be paid for every hour of overtime in 2007. :)
I've tried various web services... nothing too exciting. Yes, rents have dropped. Maybe I just have to negotiate? Oh... I'll have no trouble renting (1st, last, deposit is no problem. High FICO, good references, etc.)