The two-year housing decline is worsening

[Dan J 277]

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.

House is a good thing to buy if you plan to live there for 10-20 years or more. But the average house ownership is only 7 years. Unless you manage to have paid off most of your mortgage by then, your not getting out of the house without keeping some debt. Especially, when housing prices go down.

[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.

House is a good thing to buy if you plan to live there for 10-20 years or more. But the average house ownership is only 7 years. Unless you manage to have paid off most of your mortgage by then, your not getting out of the house without keeping some debt. Especially, when housing prices go down.

My commentary was more on the fluidity of residency these days, rather than owning vs. renting.

My current Philosophy: Why bother getting to know a renter? They'll be gone in a year.

"Old Days" Philosophy: Get to know your neighbors, because they can and will help you in a pinch.

[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?

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.

Let's talk real numbers.

Say, your mortgage is $300,000, mortgage term 30 years, interest rate 7% (which is pretty high.)

Your monthly payments are going to be $1,995.

If you don't make any extra payments towards your principal, then even after 5-8 years,

you will still have a $300,000 debt (well, ok, maybe $290,000) and you've gained nothing.

Now let's say you throw in an extra $1,000 each month. Then after 5 years, your total debt

will only be $210,000, with a monthly mortgage payment of $2,995.

Let's say your monthly rent payment is N, where N is less than $2,995.

If you rented instead of buying, you would be saving ($2,995 - N) dollars each month.

If you decided to sell your house after 5 years for M amount of dollars, where M > $300,000,

you would have made (M - $210,000)

Let's say you invest the ($2,995 - N) dollars in stocks or mutual funds - with an APY of say, 10%

(which is close to 60% after 5 years with compound interest.)

($2,995 - N) * 12 * 5 * 60%= 96 * ($2,995 - N), where N is your monthly rent

The question, what's better, 96 * ($2,995 - rent) or (sale_price - $210,000)

If you can rent the house for $1,500 and sell it after 5 years for $350,000, then $143,520 > 140,000 -

renting seems better (but the numbers are pretty close.)

If the rent is more than $1,500 / month and/or you can sell the house for more than $350,000,

then buying is better.

Also keep in mind that mortgage interest is tax deductible, so you'd be saving a little bit more

money if you buy.

[Mags 112]

My brain hurts.

[mawilson 2,133]

My brain hurts.

Personally, I hope to buy a $1m apartment for, say, $800,000 in about a year or so.

$200,000 down, $600,000 mortgaged for a monthly payment of $4,000.

Add another $6,000 on top of that, and I will own the place in 5 years and 4 months, for $10,000 / month.

[Mags 112]

My brain hurts.

Personally, I hope to buy a $1m apartment for, say, $800,000 in about a year or so.

$200,000 down, $600,000 mortgaged for a monthly payment of $4,000.

Add another $6,000 on top of that, and I will own the place in 5 years and 4 months, for $10,000 / month.

Now, wasn't that MUCH easier?

[GaryC 7]

How about in my circumstances? I plan to retire to PI when I reach 62. (13 years from now) I rent for $725/month. There are nice houses here that can be bought for $80,000 that are equivalant to where I live now. I talked to the bank and I can get a mortgage for 30 years for about $800/month INCLUDING taxes and insurance. It seems to me that I would be money ahead if I bought a house and then sold it 13 years from now when I move. I don't know enough about all this to really work out the numbers. Someone?

[mawilson 2,133]

How about in my circumstances? I plan to retire to PI when I reach 62. (13 years from now) I rent for $725/month. There are nice houses here that can be bought for $80,000 that are equivalant to where I live now. I talked to the bank and I can get a mortgage for 30 years for about $800/month INCLUDING taxes and insurance. It seems to me that I would be money ahead if I bought a house and then sold it 13 years from now when I move. I don't know enough about all this to really work out the numbers. Someone?

Let's calculate it. How much are you willing to spend on a down payment?

[PlatyPius 5]

How about in my circumstances? I plan to retire to PI when I reach 62. (13 years from now) I rent for $725/month. There are nice houses here that can be bought for $80,000 that are equivalant to where I live now. I talked to the bank and I can get a mortgage for 30 years for about $800/month INCLUDING taxes and insurance. It seems to me that I would be money ahead if I bought a house and then sold it 13 years from now when I move. I don't know enough about all this to really work out the numbers. Someone?

If you pay an extra $100/month (or even just one extra payment per year) on your mortgage, you would be even farther ahead when the time comes to sell. You would have a substantial amount to take with you to the Philippines.

[Dan J 277]

How about in my circumstances? I plan to retire to PI when I reach 62. (13 years from now) I rent for $725/month. There are nice houses here that can be bought for $80,000 that are equivalant to where I live now. I talked to the bank and I can get a mortgage for 30 years for about $800/month INCLUDING taxes and insurance. It seems to me that I would be money ahead if I bought a house and then sold it 13 years from now when I move. I don't know enough about all this to really work out the numbers. Someone?

In the current market conditions, the house price will likely go down.

Use this calculator. It assumes a rent price, which may or may not be what you pay. You can do the extra calculation if the rent price is higher than what you pay. It doesn't really take into account the drop in housing prices that will be happening over the next few years. It just assumes appreciation will follow the same pattern it did. Before the spike in prices.

http://www.cepr.net/calculators/hb/hcc.html

Edited September 12, 2007 by Dan + Gemvita

[mawilson 2,133]

How about in my circumstances? I plan to retire to PI when I reach 62. (13 years from now) I rent for $725/month. There are nice houses here that can be bought for $80,000 that are equivalant to where I live now. I talked to the bank and I can get a mortgage for 30 years for about $800/month INCLUDING taxes and insurance. It seems to me that I would be money ahead if I bought a house and then sold it 13 years from now when I move. I don't know enough about all this to really work out the numbers. Someone?

In the current market conditions, the house price will likely go down.

Dan, the house prices will NOT go down where he lives. In that part of the country,

the prices never went up and are already as low as can be.

[Dan J 277]

How about in my circumstances? I plan to retire to PI when I reach 62. (13 years from now) I rent for $725/month. There are nice houses here that can be bought for $80,000 that are equivalant to where I live now. I talked to the bank and I can get a mortgage for 30 years for about $800/month INCLUDING taxes and insurance. It seems to me that I would be money ahead if I bought a house and then sold it 13 years from now when I move. I don't know enough about all this to really work out the numbers. Someone?

In the current market conditions, the house price will likely go down.

Dan, the house prices will NOT go down where he lives. In that part of the country,

the prices never went up and are already as low as can be.

They probably wont go up either.

[Trompe le Monde 1,107]

You have to look at the local market before making such a judgement - I believe Gary is in Peoria (?), which ranks as one of the most affordable housing markets in the country. Without doing research, I doubt the kind of bubble conditions that exist in other markets would be a big problem for him.

[GaryC 7]

How about in my circumstances? I plan to retire to PI when I reach 62. (13 years from now) I rent for $725/month. There are nice houses here that can be bought for $80,000 that are equivalant to where I live now. I talked to the bank and I can get a mortgage for 30 years for about $800/month INCLUDING taxes and insurance. It seems to me that I would be money ahead if I bought a house and then sold it 13 years from now when I move. I don't know enough about all this to really work out the numbers. Someone?

Let's calculate it. How much are you willing to spend on a down payment?

I will be using FHA and have a 5% down payment. The interest rate at this moment is about 7%.

[mawilson 2,133]

How about in my circumstances? I plan to retire to PI when I reach 62. (13 years from now) I rent for $725/month. There are nice houses here that can be bought for $80,000 that are equivalant to where I live now. I talked to the bank and I can get a mortgage for 30 years for about $800/month INCLUDING taxes and insurance. It seems to me that I would be money ahead if I bought a house and then sold it 13 years from now when I move. I don't know enough about all this to really work out the numbers. Someone?

In the current market conditions, the house price will likely go down.

Dan, the house prices will NOT go down where he lives. In that part of the country,

the prices never went up and are already as low as can be.

They probably wont go up either.

I agree.