The two-year housing decline is worsening

[russ 1]

If buying when the market's down is a bad idea....would you rather buy when the market's up?

Yes. You are better off buying after a bottom while prices are rising. Your borrowing costs will be lower, and the price should be about the same. Rising prices are usually tied to cheaper credit. The credit costs more than the house for most borrowers. (A 10% drop in housing value isn't causing the default problems now. The increase in credit costs is. This is two-fold - ARMs resetting and banks pricing risk higher)

Houses are a horrible investment anyway. They are not liquid (you can't sell in one day). They have high maintenance costs (stocks and bonds charge nothing, mutual funds 1-2% per year). Houses require paying taxes, insurance, interest and maintenance every year. Over 10 years, this is more than the cost of the home - notice that I've left out mortgage principal payments. No one factors these costs in when they look at real estate appreciation. Rentals in many markets are cheaper than buying, in particular where there is a glut in supply (FL).

Rents where I live now barely cover a landlord's insurance and tax costs, HOA, plus a very small chunk of their mortgage. (I'm in the bubble in FL).

People are irrational in what they pay for real estate. A sound indicator of value is 3 times the median income - that should be about the median house price. Paying above that ratio is not sustainable for an "average" house in any area. This is even true at the high end of the market - if you make 1 million a year, you can't afford more than a 3 million dollar house. Your taxes, insurance, and living costs generally rise in proportion with value.

Realtors are salespeople. They get paid for closing deals. While brokers are regulated, they still only get paid to close deals.

[russ 1]

I really do want to know what is a better investment than real estate.

People will say equities outperform RE in the long term. If you go strictly by prices, they do. However, there's the additional emotional component that RE provides that equities can not. RE is "home". You can't live in a stock.

No. But the larger returns from equities will allow you to have the cash to buy the house when market conditions are favorable, with no credit cost.

You can always finance when credit conditions are better (cheaply, since you have all the equity, and time to shop).

This is why professional investors are the only ones as a whole that will ever consistently make money in real estate - they have no emotional attachment, and will buy and sell to maximize profit. (By professional, I mean REITs and the like, not individual speculators).

I think that demographics will hurt real estate as the baby boomers retire. As a group, they will be taking equity out of their houses to finance retirement. Their selling, coupled with the lower income of the GenX buyers will keep prices down.

[Fandango 1,439]

Sorry, but with the amt of pre-foreclosures out there and with prices the way they are, it's a GREAT time to buy.

Mtg ins many times can be paid up front, sometimes for 1%. Which will save THOUSANDS.

And while no one has a crystal ball, buying a house is quite like buying stock. Are you better off waiting til you could possibly get in at the ROCK bottom...sure I suppose if you have to get in at the lowest. But you're still losing the rent money while you wait anyway!

Whether ppl sell in 7 years or not is moot....if you buy another home, then you're still on that property ladder and you're still holding a huge asset. Again, it's merely a transfer of your equity. Let alone all the tax breaks that come with home ownership! 1031 exchange for investors, capital gains, etc.

[athena_ny 1]

For most people, your better off renting over buying a home. And buying when the market is going down, without a significant down payment, is an even worse idea. Although you will likely be able to make an offer below list price.

Are you kidding me here?

If buying when the market's down is a bad idea....would you rather buy when the market's up?

I've said this before and I'll say it again...if you're looking to stay within the same mkt (ie...sell in NY, buy in NY...not sell in NY and buy in South Carolina, for example)....the ONLY houses that matter are the first one you buy, and the last one you sell. Everything else is simply transferring equity. Naturally, the best time to buy is when prices are low...and the best time to sell is when prices are high.

Most people involved in the mortgage real estate industry have a vested interested in making the market look better than it is. Agents get commission on each sale, mortgage brokers get one for each mortgage. Appraisers are hired by the bank, and will provide a value favorable to the bank or they don't get hired again.

People in the re industry can make money no matter WHAT kind of market it is. It makes no difference really whether it's a buyer's market, seller's market....sure there's different things to focus on...but no one has a 'vested interest in making the mkt look better than it is'. And REALTORS abide to a code of ethics that would prevent such unscrupulous methods on a whole. I say 'on a whole' because I'm sure there are a few bad apples...but that's not who I'm talking about.

Furthermore....we can't MAKE the mkt look like anything other than what it is. Because the market dictates the activity. I can't say 'oh yeah, that house is worth in the range of ........' if it's not because I didn't just pull those figs out of my backside....there's hard data to prove it. There's no magic wand in my pocket.

But compared to other investments, a house costs to much to be worth it. If you had and sold a house during the housing bubble, you were lucky. We are very unlikely to see that kind of growth again. Its likely you can rent a better plan than you can buy for what the mortgage will cost you each month.

You tell me what other investment....one that fills a need that every one of us has....one that you can buy without actually paying for it, one you use daily, one that you could actually draw money from, should you ever need it, and then one that you could sell and GET YOUR MONEY BACK, let alone MAKE money on....tell me ONE other tangible asset that can do that????

Whether the temporary mkt is in a state of flux is irrelevant....hot dogs no longer are a nickel, yanno what I mean????

But renting being better assumes that you will actually invest the money you save. Not go on a spending spree.

Before you buy, do the math: http://www.cepr.net/calculators/hb/hcc.html

What money do renters save, exactly? Sure, if you want to not have to worry about doing maintenance on the home ie water heater, roof, etc...that's fine. But you can take your rent money and flush it down the toilet. You're at the mercy of your landlord (why does the landlord have an income-generating prop in the first place if RE is not a good investment???), you're bound to landlord/tenant laws...I know in FL, a landlord can keep a key to gain entry. I dunno about you, but I don't want ANYONE having a key to my place. And what if your rent goes up 150 bucks next lease? You either pay up or move. What if the landlord wants to sell and not renew? You move. You're at someone else's say-so & have no control over your own living situation. This fact alone is enough for some people to want to own their own home. To say, yeah this house is mine and no one can tell me what to do.

The ONLY time renting is not a waste of money is in the instance of just moving to a new area, and you're unsure of where you want to be.

I really do want to know what is a better investment than real estate.

I'm not trying to sound testy, so please forgive me if it comes across that way. This is something that I'm obviously quite passionate about! I do think that you're not really seeing the bigger picture here & are paying too much attn to the 'DOOMSDAY!' reports. The mkt is in a state of readjustment...the sky is not actually falling

Editing to add: this is purely my opinion and I am not offering real estate advise here.

I am a renter and I agree. My parents own their own house, and have for 20 years (the one I grew up in) and I'd much rather have a house than rent - I am at everyone else's mercy here, and my rent is the same amount as a mortgage payment.

[PlatyPius 5]

I think that the dip in real estate depends on where you live....Im in NY and real estate although it has slowed a little is still in ok shape...especially in manhattan NY....

And here in Indiana, it never really started. House prices are still in the $70k - $180k range for a "normal" house. (3br/2ba/1 lot/new construction/2 car gar)

[ChristinaM 0]

Here in Maine, rents are high compared to salary (as is general cost of living). However, it's still more affordable to rent than it is to buy. With a 3% down and excellent credit, we were looking at paying $1135 a month on a $130K property. Here, that will buy you a 2-3 season rental on the coast, or a run-down 2/3-bed single family in a lousy neighbourhood, or a tiny one-bed condo in a less-good-but-not-dreadful area.

We currently pay $750 a month for a nice 2/3-bed apartment in a less-good-but-not-dreadful area, which includes the heat and HW. Why on earth would it make sense for us to mortgage ourselves up to the hilt for a property just because the market is "good"right now? Particularly when you consider that the rise in your house price over the longer term is really only the same as inflation.

It's far better IMHO for people to wait until they can afford a mortgage than to leap into something with no money down (because people with 0% down are three times as likely to foreclose than those with 20% down) just because their RE agent told them that "there will never be another opportunity like this - BUY NOW!". And there are agents (in collaboration with mortgage brokers) out there doing that - which is essentially why the whole subprime mess came about, because people who couldn't afford houses were granted credit they shouldn't have been for a house they couldn't afford in the first place!!

Think of rent like electricity - OK, you didn't gain any equity this month, but you paid for having a roof over your head (and you didn't lose any equity either!). You don't look at your electricity bill and go "Hmm, how could I have made my electricity work harder for me this month?". You needed it, so you paid for it. You needed a place to sleep, so you paid rent.

Of course the market is declining; who can afford the crazy prices? Fortunately the bubble has not so much burst but is deflating somewhat slowly, which is giving the market a chance to correct itself. But when everything is overpriced, it's going to take a long, long time to stabilise and begin to rise again. I don't understand why that's a big shock to anybody.

Sorry that was kinda rambling - someone interrupted me in the middle and I wandered off course a little

[russ 1]

Of course the market is declining; who can afford the crazy prices? Fortunately the bubble has not so much burst but is deflating somewhat slowly, which is giving the market a chance to correct itself. But when everything is overpriced, it's going to take a long, long time to stabilise and begin to rise again. I don't understand why that's a big shock to anybody.

Corrections in real estate don't come in 50% drops in price over a short term, they generally show up as flat prices over many years after a decline. One reason is that owners are not emotionally prepared to realize a 50% loss, so they hold out for years. Investors are far more likely to get out of a stock that has lost 50% if the fundamentals are bad.

A seller's broker that didn't say "ITS A GREAT TIME TO BUY" would be out of a job quickly. Even a buyer's agent is unlikely to say this (they would go broke if they told everyone this for a year, even if the market truly was overpriced). Look at when brokers are buying themsleves in large numbers - that is generally a buying oppurtunity.

[Dan J 277]

Here in Maine, rents are high compared to salary (as is general cost of living). However, it's still more affordable to rent than it is to buy. With a 3% down and excellent credit, we were looking at paying $1135 a month on a $130K property. Here, that will buy you a 2-3 season rental on the coast, or a run-down 2/3-bed single family in a lousy neighbourhood, or a tiny one-bed condo in a less-good-but-not-dreadful area.

We currently pay $750 a month for a nice 2/3-bed apartment in a less-good-but-not-dreadful area, which includes the heat and HW. Why on earth would it make sense for us to mortgage ourselves up to the hilt for a property just because the market is "good"right now? Particularly when you consider that the rise in your house price over the longer term is really only the same as inflation.

It's far better IMHO for people to wait until they can afford a mortgage than to leap into something with no money down (because people with 0% down are three times as likely to foreclose than those with 20% down) just because their RE agent told them that "there will never be another opportunity like this - BUY NOW!". And there are agents (in collaboration with mortgage brokers) out there doing that - which is essentially why the whole subprime mess came about, because people who couldn't afford houses were granted credit they shouldn't have been for a house they couldn't afford in the first place!!

Think of rent like electricity - OK, you didn't gain any equity this month, but you paid for having a roof over your head (and you didn't lose any equity either!). You don't look at your electricity bill and go "Hmm, how could I have made my electricity work harder for me this month?". You needed it, so you paid for it. You needed a place to sleep, so you paid rent.

Of course the market is declining; who can afford the crazy prices? Fortunately the bubble has not so much burst but is deflating somewhat slowly, which is giving the market a chance to correct itself. But when everything is overpriced, it's going to take a long, long time to stabilise and begin to rise again. I don't understand why that's a big shock to anybody.

Sorry that was kinda rambling - someone interrupted me in the middle and I wandered off course a little

With mortgage, you mostly rent your house for the first 10 years. So unless you plan to stay much longer than that, its a bad idea.

[Dan J 277]

Sorry, but with the amt of pre-foreclosures out there and with prices the way they are, it's a GREAT time to buy.

Mtg ins many times can be paid up front, sometimes for 1%. Which will save THOUSANDS.

And while no one has a crystal ball, buying a house is quite like buying stock. Are you better off waiting til you could possibly get in at the ROCK bottom...sure I suppose if you have to get in at the lowest. But you're still losing the rent money while you wait anyway!

Whether ppl sell in 7 years or not is moot....if you buy another home, then you're still on that property ladder and you're still holding a huge asset. Again, it's merely a transfer of your equity. Let alone all the tax breaks that come with home ownership! 1031 exchange for investors, capital gains, etc.

Or by buying now, your getting a mortgage for more than the house will be worth in 5 years. If you have to sell, what if the sale price doesn't pay off the mortgage?

[mawilson 2,133]

If you buy a house now, its likely to drop in price. But it wont rapidly gain value again after the market recovers. It will take a long time for the $250,000 house you buy today, to be worth that much in market correction and inflation is taken into account in the future. If you don't plan on living in that house for 20-30 years, you are much better off not buying it. In the short term it will continue to lose value, only in the long term will it regain that value.

In your charts, did you take into account the rent money thrown to the wind?

[Dan J 277]

If you buy a house now, its likely to drop in price. But it wont rapidly gain value again after the market recovers. It will take a long time for the $250,000 house you buy today, to be worth that much in market correction and inflation is taken into account in the future. If you don't plan on living in that house for 20-30 years, you are much better off not buying it. In the short term it will continue to lose value, only in the long term will it regain that value.

In your charts, did you take into account the rent money thrown to the wind?

Not in the charts, but it doesn't also take into account the cost of a mortgage. Which depending on your market, can be more than what rent will cost for an equivalent property. You throw a lot of money into the wind with mortgages too. And you will only come out on top, if you own for a long enough period of time or have a small mortgage that can be paid off quickly.

[AnaAndDaniel 0]

I am not sure why most ppl look at a house as an investment.

As russ pointed outed, ther are number of reasons for this. Big one is you just can't and sell it right away. But more importantly, it is where you live.

For me, it was a case of where do you want to live? Buy a house there. If circumstances change, then you do what must be done (eg, sell and buy another).

all other financial activity is seperate. If you save some money, you have the option of investing in some kind of investment vehicle (this could include real estate by the way).

Anywhos, buy a house because you want to own a house, not for the "investment" part of it.

Daniel

:energetic:

[Dan J 277]

I am not sure why most ppl look at a house as an investment.

As russ pointed outed, ther are number of reasons for this. Big one is you just can't and sell it right away. But more importantly, it is where you live.

For me, it was a case of where do you want to live? Buy a house there. If circumstances change, then you do what must be done (eg, sell and buy another).

all other financial activity is seperate. If you save some money, you have the option of investing in some kind of investment vehicle (this could include real estate by the way).

Anywhos, buy a house because you want to own a house, not for the "investment" part of it.

Daniel

:energetic:

You loose a lot of money selling and buying a new house, Especially if you buy a house now and need to sell it in 5 years. You will end up with money left on a mortgage, but no house. Unless you know you will be in one house for 15 years, its much better to rent. You can get out of a lease much easier than you can get out of a mortgage.

Fewer people every day are working for just one company. And some people are getting moved for one city to the next with their jobs. If you want the flexibility to move, buying is not the way to go, you will be putting a lot of money into the costs of buying and costs of mortgage, in many case, much more than what you would lose if you rent.

[PlatyPius 5]

I see graphs, I see cost assessments, value, investment, blah, blah, blah.... Nowhere do I see anyone mention "Home", "Stability", "Permanence", or "Roots".

I lived in one house while growing up. Twenty years after moving out, I can still drive to that house and find my mother there. It was rare for kids to move away when I was in grade school. The friends you started with were still there when you graduated.

Mags and I have put a lot of money into our house. Could we get that money back if we sold the house? Who knows. Who cares? It's our HOME. Not an "investment", not a blip on a graph.... it's the place my grandmother bought in 1955, and it's the house I plan on living in for a long time.

[Trompe le Monde 1,107]

I would personally love to buy a house right now not for investment reasons but because owning is better than renting. However, a traditional mortgage for the equivalent apartment in my area costs $1000+ more per month than my rent (which is rent controlled) never mind property tax and maintenance. I don't plan on being in the area in 5-10 years time. When the median home price in Southern California is 10 times the median income - I have to believe that is unsustainable and prices are going to drop a lot further. Of course it might not drop as far as I might like, but I'm sure they will be stagnant for several years.

If I planned to be in the area in 20 years time it might make a difference, but I'm not so RE just doesn't make sense at the moment.