Thursday, November 01, 2007

Now That Housing Has Soured, Renters Are Glad They Didn't Buy

This article's title is the headline from a Yahoo Article.

The best quote:
Now, she says, some of her friends regret making those buys and are funding expensive home repairs a home inspection might have revealed.

Basically, MSM news on how if rent were closer to the cost of owning, more people would own. Since its far cheaper to rent and the rent increases are "manageable" while the mortgage payments are insane, people will rent. I liked the example of one guy being subsidized by a friend.

Got popcorn?
Neil

7 comments:

baddriver said...

As a bitter renter let me just say its nice to see the mainstream media start to come around to what we've all known and have been shouting for the last few years.

tj & the bear said...

Dude,

eMailed you, but no response yet. Hope it didn't end up in your junk folder.

nmoerbeek said...

Hi Neil,

I have tremendous respect for you and have read your comments on the housing bubble several times.

I was wondering if you can help me come up with an amount for a house a I want to buy. I am willing to pay what is fair not overly inflated values. I think the bank wants to get rid of it pretty bad.

Its 5 minute from my office and its neighborhood is nice enough were I do not feel fearfull for my life

Here is its information

Movoto
http://tinyurl.com/2w3pjo

Zillow
http://tinyurl.com/2k34eu

It has lost about 28 percent of its value sense its peak. However, I also noticed that its original price in 2003 was 200k. When I looked in it it looked like it had been an attempted flip hardwood floors, new paint etc.

Does 272,000 sound about right to you? That would be about as much for a rent payment for an apartment considering the area. What do you think?

tj & the bear said...

nmoerbeek,

I know you didn't ask me, but...

Go back to Zillow and look at that 10-year chart. The "normal" appreciated value for that property should be an extension of that line from 1998 to 2002; IOW, at most $200K.

Now, when you consider that we're on the downside of the mother of all credit/housing bubbles, you *have* to figure prices will overshoot to the downside. That's on normal transactions, too, not REOs.

Sounds like you like the place, so here's the bottom line:

a) If the true TCO is comparable to renting;
b) If you can *easily* afford the home on a fixed loan, with at least 6 months cash reserves;
c) If you plan on staying at least ten (yes, 10) years with no expectation of appreciation;

...then go ahead and buy.

nmoerbeek said...

Thanks tj & Bear

What about 5 years? Should I take into consideration the lost money i could have made on interest sense I may move states in 5-7 years.

tj & the bear said...

nmoerbeek,

Correct me if I'm wrong, but wasn't the "classic" rule that you had to stay somewhere at least 5 years just to break even? Transaction costs and very little principal pay-down in the early years of a loan, you know.

Things are going to get much worse before they get better, so the risk is to the downside. Again, though, if the numbers work for you it could be worth the risk.

wannabuy said...

Ok, I ignored my own blog for the weekend, mea culpa!

TJ, I e-mailed you. You now have the e-mail I regularly check.

nmoerbeek,

The old standard is to buy and break even at 5 years. I owned for two in Florida and lost $7k on the transaction more than rent! Long term its smart to buy, but not now. The decline in prices will be amazing.

On the other hand, the Fed is trying to inflate like mad... keep the powder dry. We'll know its time to buy a long time before it is really a good time to buy.

Got popcorn?
Neil