Posted on 09/21/2007 10:49:53 PM PDT by Freedom_Is_Not_Free
But consumers cannot increase long term debt levels without proper education. Consumption per se is not the road to riches, it is investment and higher productivity. Our schools are failing us they do not teach capitalism because it is a dirty word.
BUMP
It was not a compliment just a comment. I do agree with the freedom to choose. Enjoy your life.
Mark
Got it in one. House paid off, both cars paid off, only debt is the monthly "paid in full" credit card. And in my particular part of the country, house prices are still going UP (but less quickly than previously--unfortunately, that means my taxes will go up, too).
So it really IS "all local" as another poster said up-thread.
Houses in locations that are in high demand will always command relatively higher prices than similar houses in places that are less desirable.
Then factor in schools and taxes (which go towards desirablity) - paradoxically, some of the places with the best schools have relatively low taxes (e.g. Beverly Hills in Southern California, Greenwich in Connecticut).
What it sorts out to is that the best 'values' in the housing market are almost always in established communities with high median incomes. If you can afford to buy in those places, your carrying costs will be (relatively) lower than in places with similar housing prices. Of course, you'll get less house for your money.
In graduate school in economics, I did a study of the LA County housing market from 1950 through 1970 and found that something like 75% of the variation in housing prices for more or less similar neighborhoods (in terms of construction, age of home, size, etc.) could be explained by two variables: (1) the property tax rates, and (2) the amount per pupil spent in the school district in which the census tract was located. Where I had really good time series data on prices on one street where the houses were almost identical, but one side was in Beverly Hills (low taxes, high expenditure per pupil) and the other side was in LA County (unincorporated) (high taxes, lower expenditure per pupil), those variables explained almost the entire variation at a pretty high level of confidence.
If I could buy in San Francisco, Belvedere, Tiburon, Hillsborough, Palo Alto or similar towns, I would, even in a downturn (though I would expect short term declines). Sacramento, on the other hand, has seen huge expansion over the past 40 years, and I would be exceptionally wary of purchasing there - unless I could get into the very best neighborhoods in the city itself or the surrounding 'burbs. Even then, I would look for the lowest (relative) tax rates (given the effect of Prop 13 on buyers) and (if I needed schools for kids) good schools. I would accept the fact that I would get a lot less house for my money, but that the value would be more solid.
We live in Greenwich, Connecticut. While houses are ferociously expensive here, the declines in the last big decline were small compared to neighboring towns. Similarly, for a house with the same value, the taxes here are between 1/3 and 1/2 what they are in adjacent Stamford - yet, our schools and our municipal services are infinitely better. Buying here was a very sound investment.
The other issue, of course, is whether a renter has the disposable income and the discipline to actually invest the amounts he would otherwise put into a house, taking the tax benefits into account. In most cases, the answer is no - a homeowner will go 'house poor' and scrimp on other things to keep up the value of the house, that is to say continue to invest in it, where the renter is in most cases very unlikely to scrimp in the same way in order to invest money.
So, while in theory it may be true that renting can be a better investment than owning, in limited circumstances such as places with high taxes and carrying costs, the simple fact is that human nature is such that few would take advantage of it.
People who favor renting are usually those in situation such as you have described, where they invested expecting high gains and did not seem them (and perhaps even saw losses). What needs to be more closely investigated was their original buy/rent decision and their lifestyles. Did they rationally chose higher quality neighborhoods with low taxes, but less house, or did they go for the bigger house? There's no such thing as a free lunch!
A further thought: where the choice is between renting and buying only in a not especially desirable location (i.e. one with long commutes, less than stellar schools, relatively high taxes, relative newness of community), renting may well be a much sounder choice, under two circumstances: 1) where you can rent in a more desirable location at a lower cost than you can buy (taking into account the return on investment you’d get on the down payment, additional amounts you’d actually invest, and the tax benefits of buying) in the less desirable location, or 2) where your choices are limited to renting and buying in less than desirable locations, but (i) you expect housing prices to decline, and (ii) renting is less expensive (net of taxes and upkeep costs) than owning. Even so, in both scenarios, the decision to rent is rational ONLY if you make a substantial effort to invest the funds you’d otherwise spend on buying.
The problem, of course, is that a usually is not always and that substantial numbers of buyers are not informed.
This comes about at every housing price “correction”
This was the same message during the stock bubble too.
I agree with you in principle, especially with the factor that the author seemed to omit--the tax deductibility of the interest. But your statement ignores his point, which is that "tak[ing] the equity" isn't going to happen in these market conditions. I'm not sure I agree with him, but that's the point that we should debate.
You can get 1000 sq ft condos here in greensboro for $350-400/month with 20% down at 6%. Or 1200 sq ft townhomes for around $600 (excluding taxes of course)
While I generally agree, I had some coworkers by a starter home in the Boston vicinity (1800 square feet) for over $500k. Some places don’t allow purchases of even the tiny....
Renting isn’t for everybody, but owning, while something I hope to do someday, isn’t the guarantee of security people wish it were. In many ways, owning is a ridiculous burden that takes up in time and effort and expense any benefit that may appear down the line.
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I have owned my own place since 1972 and I AGREE TOTALLY! In my case owning was the way to go but if I were truly rich I would lease everything and own nothing except financial assets. The truth is that you cannot own real estate anyway in most areas. My deed is only a contract to lease from the county, automatically renewed every year as long as I pay my lease (property taxes) in time to avoid eviction. Some people profit greatly by buying their own home and some lose huge amounts the same way. There is nothing magical about owning a house.
The median is just the middle point, so the median would be $100,000.
Let's say you have 10 people. One person makes $10k a year, the second, $20k, each making $10 more than the last except for the 10th guy who makes $1,000,000/year. The mean would be $145,000/year. The median is $55,000/year (between $50k and $60k). The median better reflects the average of these 10 people. Housing is similar.
average 12,000 sq. ft. 3 brm bungalow)
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That’s SOME KINDA average bungalow there, Zach! How big is an above average bungalow?
A major drawback. When you convert your house asset into, say, a CD, your taxes go up because you pay income tax on the interest but didn’t on the house.
This doesn’t seem proper given the same amount of money.
any ideas?
Gotta agree - people who say they own a house ought to try missing tax payments.
Then they’ll find out who really owns the place.
ALL things considered, except for the occasional value blip, both in the end are about equal.
The decision is about how and when you want to use your money.
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I don’t know how the figures stack up today but I saw an analysis done many years ago on real estate and the conclusion was that (when all factors are considered) renters and buyers (of site built homes) came out about the same in the end. The advice was that if you really wanted to come out ahead in the long term, buy a mobile home and put it on your own lot. That was exactly the opposite of the conventional wisdom but the analysis was done by a university professor of economics if I remember correctly.
The cost of owning (and especially maintaining) the mobile home was so much lower than the cost of owning and maintaing the site built home that it wiped out any gains from appreciation on the site built home. Actually no site built house appreciates in reality, this can be illustrated quite easily, any increase in the house itself is purely inflationary. The lot on which the home sits can and often does appreciate hugely in real terms but not the house itself.
.....What does this mean?.....
It could be argued that given the facts above, the minimum wage increase was not nearly enough. /sarc
I disagree with the authors assessments here, Price is only one factor.
In 1990 I could have bought my house for say $200K with a 11% interest rate. So in 2002 I bought my house for 210K with a 5% interest rate.
Net effect is to me is that my monthly payment is 1/2 of the 1990 rate. My house has a maybe a market value of around $350K give or take. Make adjustments for tax increases and income increases, monthly payments are on par with 1990 if somebody was to pay my $350K price tag.
The problem here seems more of a supply and demand issue with the market being overbuilt. There will be a couple of bad years with some declines in price but %50 is an overstatement unless mortgage rates go back to 10% (unlikely)
It’s Never the PRICE you PAY It is the TERMS of the payment that makes the difference
Chart should have been plotted median mothly payment vs. price
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