From the NY Times:
A Word of Advice During a Housing Slump: Rent
A promotional spot for the National Association of Realtors came on the radio the other day. The spot, introduced as something called “Newsmakers,” was supposed to sound like a news report, with the association’s president offering real estate advice.
“This is the best time to buy,” Pat Vredevoogd Combs, the president, said cheerfully. “There’s a lot of inventory in the marketplace. Interest rates are low. It’s a wonderful tax deduction.”
By the Realtors’ way of thinking, it’s always a good time to buy. Homeownership, they argue, is a way to achieve the American dream, save on taxes and earn a solid investment return all at the same time.
That’s how it has worked out for much of the last 15 years. But in a stark reversal, it’s now clear that people who chose renting over buying in the last two years made the right move. In much of the country, including large parts of the Northeast, California, Florida and the Southwest, recent home buyers have faced higher monthly costs than renters and have lost money on their investment in the meantime. It’s almost as if they have thrown money away, an insult once reserved for renters.
Most striking, perhaps, is the fact that prices may not yet have fallen far enough for buying to look better than renting today, except for people who plan to stay in a home for many years.
…
Over the next five years, which is about the average amount of time recent buyers have remained in their homes, prices in the Los Angeles area would have to rise more than 5 percent a year for a typical buyer there to do better than a renter. The same is true in Phoenix, Las Vegas, the New York region, Northern California and South Florida. In the Boston and Washington areas, the break-even point is about 4 percent.“House prices have to fall more before housing becomes a clear buy again,” says Mark Zandi, chief economist of Moody’s Economy.com, a research company that helped conduct the analysis. “These markets aren’t as overvalued as they were a year ago or two years ago, but they’re still unfriendly. And that’s one of the reasons the market is still soft — people realize it’s not a bargain.”
There is obviously no way to know what home prices will do in the next few years. But there are two big reasons to doubt the real estate boosters who insist that it’s once again a great time to buy.
The first is history. After the last big run-up in house prices, in the 1980s, a long slump followed. In the New York area, prices peaked in early 1989 and then fell 9 percent over the next three years, according to government data. (Adjusted for inflation, the drop was much bigger.) Not until 1998 did prices pass their earlier peak.
Keep in mind that the 2000-5 boom was even bigger than the ’80s boom and that house prices on the coasts, according to the official numbers at least, have fallen only slightly so far. So it is hard to imagine that prices will rise 5 percent a year, or another 28 percent in all, over the next five years.
…
After hearing that radio spot, I called Ms. Combs and asked her whether she thought there was any chance that she and her fellow Realtors had gone a bit too far in promoting the boom. “I absolutely disagree,” she said, still cheerful. “We help people look at the marketplace.”
From Bloomberg:
Subprime Losers Blame Bear, Credit Suisse, JPM, Morgan Stanley
When Buck Meyer thinks about the $300,000 he lost after he bought a subprime mortgage lender’s bonds, he doesn’t hesitate to denounce financial titans Bear Stearns Cos., Credit Suisse Group, JPMorgan Chase & Co. and Morgan Stanley.
Like the thousands of people who snapped up American Business Financial Services Inc.’s notes yielding 10 times the going rate on Treasury bills, Meyer had no idea that the company was on the verge of bankruptcy. He wondered how something so celebrated as “a kitchen-table startup” by the Philadelphia Business Journal and so lucrative that it paid $50 million in fees to the four firms for its burgeoning credit, could default on his money.
“At what point did it become a Wall Street Ponzi scheme?” said the 52-year-old Meyer, who almost wiped out the nest egg he received from selling his home in Doylestown, Pennsylvania, six years ago.
…
Joseph Funk, a 79-year old retiree who worked as a mechanic for soap-maker Lever Brothers in Baltimore, lost $70,000 in American Business notes. He says he became too confident and too greedy as the high-yielding notes continued to pay. Funk says the Wall Street firms were greedy too, yet didn’t pay a price for it.
“These people are supposed to be the great financial minds of the world so they must have had some inkling that this was coming,” said Funk. “They got their money out before the little people.”
Moody’s Downgrades ABN, 43 Other Banks After Protests
http://www.bloomberg.com/apps/news?pid=20601087&sid=a5v4KTr16.kE&refer=home
http://www.businessweek.com/ap/financialnews/D8OEB9P80.htm
China finance minister to miss G-7 meeting
Beijing is sending a deputy finance minister to the meeting instead…
Subprime Sharks Circling
http://www.forbes.com/home/guruinsights/2007/04/10/subprime-blackstone-zell-pf-guru-in_ps_0410realestateintelligence_inl.html
Just as, in the late 1990s, investment banks flocked to Japan to buy up billions in bad Japanese debt and then combed through the dross to find a gem or two worth their trouble, the same thing is going to happen with today’s subprime morass.
From MarketWatch:
Mortgage applications down for fourth week
Applications for mortgages again fell last week as interest rates rose, the Mortgage Bankers Association reported Wednesday.
The number of applications filed at major U.S. lenders thus dropped for a fourth straight week, as adjustable-rate mortgages fell to the lowest share of applications in nearly four years.
The total number of applications filed — including purchase loans and refinancing loans – was 0.4% lower on a week-to-week basis, but they were up about 11% compared with the same week a year ago.
The MBA’s data do not indicate how many applications were accepted.
The number of applications filed to refinance an existing mortgage dropped 4% last week. Refinancing applications, which were up about 32% compared with the same week a year ago, accounted for 43% of total applications, the smallest proportion in six months.
The volume of loan applications to buy a home rose 2.7% compared with the previous week, but purchase loans were down about 1% compared with a year ago.
From the Herald News:
Sheriff’s sale put off for two weeks
In a last-minute reversal, a bank seeking to foreclose on the home of Leo and Wilhemina Marshall adjourned the sale for two weeks.
The Marshalls expected to lose their home of 37 years during a sheriff’s sale on Tuesday afternoon. The Paterson couple claim they were the victims of a complicated mortgage scam, leaving them with a loan they could not afford nor had intended to buy.
After a Herald News story on Tuesday depicted the Marshalls’ desperate situation, US Bank decided to postpone the foreclosure. It was adjourned until April 24. The Marshalls’ lawyer is appealing a court decision that allowed the foreclosure to proceed despite arguments that the loan was fraudulent.
…
Lawyers representing US Bank could not be immediately reached for comment. Bill Maer, Passaic County Sheriff’s Department spokesman, confirmed the postponement. He said foreclosure stays were common.
“The sale list for today started with 30 sales. By sale time we sold four properties,” Maer said.
I haven’t read the entire article, but based upon the summary, I’m surprised the NY Times would print something so obviously anti-real estate.
Take a look at the interactive calculator. I’ve only played for a bit, but it seems surprisingly unbiased.
jb
Again, amazing how things turn in one year. Last year renters were wannabes. In a short period of time renting becomes more desirable and practicable. Sometimes it does pay to sit on the sidelines.
“Fallout in the U.S. subprime mortgage market could spread to related markets, the International Monetary Fund warned on Tuesday, as nagging worries about housing helped weaken the dollar.”
“The crisis has triggered broader concerns that the fallout may spread to mainstream lenders and damage the U.S. economy.”
http://www.canada.com/nationalpost/financialpost/story.html?id=f9ded176-f866-4510-b9dc-ccf104172263&k=39399
I just want to take a minute to thank everyone for their donations. The support has been nothing short of incredible. These donations will make it much less painful to move the site to a higher-end web host for better performance and reliability.
I’m currently researching a handful of VPS hosts (A Small Orange, Spry, MediaTemple, Rackspace, etc) to see which company offers the best mix of performance and reliability. VPS hosting is going to run anywhere from $500 to $1000 a year depending on the features. I rushed the move from Yahoo! to DH due to poor site performance, only to find unacceptable reliability at the new host. Since performance here is generally OK, I’m going to take additional time to select a host that I can trust.
Selecting a web host isn’t an easy task at all. Searching for information on the web is all but useless. Why? Because many of these companies provide large referral fees to sites that bring new members. Thus, thousands of “host review” sites have popped up, which are nothing more than advertising fronts for these companies. Finding an unbiased review seems just about impossible.
jb
timing the market produces far more losers than winners. let’s say you thought prices were historically out of whack 4 years ago and said i’m not buying until they realign. even today you’d still be ahead.
“timing the market produces far more losers than winners.”
…….especially for those that timed their long in 2006.
#12 Richard But today is not 4 years ago, so what is your point.
Not to mention that many may have played the ATM game in the last 4 years, so they are not ahead either.
And we will IMHO be back to 2003 prices over the next 12 months, and if I am right, then the buyers of 4 years ago have simply been treading water.
Richard the NYT’s has capitulated, it is time for you to do the same.
let’s say you thought prices were historically out of whack 4 years ago.
Who, exactly, thought that prices were “out of whack” in early 2003?
jb
How many people does Citigroup employ in New Jersey?
From a Citigroup press release:
Consolidate certain back-office, middle-office and corporate functions at the business, regional and headquarters levels to eliminate duplication of effort …. More than 9,500 jobs will be moved to lower-cost locations, both domestically and internationally…
This sounds like code for moving jobs away from NY/NJ to other lower cost locations.
Citigroup, by the way, was a recipient of funds from NJ to move jobs to their Warren location. Will they pull another MSNBC?
If we were at 2003 price levels, I would not be renting, at this time.
at C –
is it 17K(job elimination) + 9.5K (outsourced) jobs?
http://biz.yahoo.com/rb/070411/citigroup.html?.v=8
Rogers shorts U.S. builders, eyes more losses
http://www.reuters.com/article/GlobalHedgeFundandPrivateEquity07/idUSN1044091420070411
“They will go down a lot more. You just don’t clean out a speculative bubble in six months,”
A total of 32 percent of balances face rate adjustments over the next 12 months, he wrote in a report, citing data from First American Corp.’s LoanPerformance unit. Payment resets will range between 1 percent and 3 percent of outstanding subprime balances in the other months between this May and November 2008, and then fall below 1 percent in December 2008, DiMartino wrote. Another 5 percent of subprime loans will hit reset dates after 2008, he said.
http://www.ocregister.com/ocregister/money/homepage/article_1647893.php
JB
Did know you were accepting donations. You may want to post how we can do that closer to Friday. I’m guessing that the weekend discussion is the time when you get the most hits. Do you track that?
2008
That NYT Rent vs. Buy calculator is very helpful:
http://www.nytimes.com/2007/04/10/business/2007_BUYRENT_GRAPHIC.html?_r=1&oref=slogin
do your income to house price calculations from 2000 on.
You will soon be able to see 2006 data.
—————————
Fed to Announce HMDA Data Availability
The Federal Reserve Board plans to announce this week that the 2006 Home Mortgage Disclosure Act data is available.
The data on mortgage lending transactions has been available by request through individual lenders since March 31. Lenders have 30 days to provide the information.
The data shows the disposition of loan applicants, their location, applicant characteristics and census tract characteristics, such as minority status and income. For the third year, the data also shows information about loan pricing.
The new data is being released as lawmakers scrutinize banks and others to see if they might be engaging in abusive lending practices.
The NY Times article has now made it to the top of their “most emailed” stories list.
in westfield i’m not seeing much new inventory, just a bunch of overpriced crap that’s been on the market a while. anything that’s decent priced at near 2005 peak levels is moving very quickly. the quality supply imbalance to demand is quite obvious. those with less than pristine properties are going to have to adjust if they want to sell. alas most don’t need to put on a fire sale to sell, they’ll just sit tight and wait for the market to recover.
Assuming they are able to wait up to 10 years.
Westfield (via GSMLS)
Active Inventory
March 2006 – 206
March 2007 – 244 (Up 18% YOY)
New Listings
March 2006 – 62
March 2007 – 59 (Down 5% YOY)
Under Contract
March 2006 – 45
March 2007 – 28 (Down 38% YOY)
Sold
March 2006 – 28
March 2007 – 25 (Down 10.7% YOY)
The UC data is particularly suprising.
Absorption based on contract sales:
March 2006 – 4.6m
March 2007 – 8.7m
Absorption based on closed sales
March 2006 – 7.4m
March 2007 – 9.8m
Sorry Richard,
I bought in 1999 sold in 2003, bought new place in 2003 and sold it in spring 2006 due to what appears to be a fortuitous divorce.
I know all about the bubble because I luckily rode it up. Nobody in their right mind should buy right now unless they plan on staying in the place for a good 7-10 years. You are looking at best growth at the rate of inflation for the next ten years.
Under Contract- Westfield
March 2006 – 45
March 2007 – 28 (Down 38% YOY)
[28],
I guess more Jehovah’s are knocking on doors as compared to realtors/buyers.
#26 Richard: Then you are saying that all approximately 170 SFH’s for sale in Westfeild are over priced POS’s?
Exactly then which SFH’s are the onew that are selling quickly? Is it Westfield or Brigadoon you are talking about?
I’m guessing that the weekend discussion is the time when you get the most hits. Do you track that?
Monday and Tuesday are typically our highest traffic days. High comment days don’t coincide with high traffic days. Those who participate in comments are in the minority, unique visits that result in comments are in the single digit percentage range.
jb
Richard
#26
Westfield is overrated and is subject to corrections like any other NYC/NNJ market. If you think otherwise, you are drinking the NAR’s kool-aid.
There’s much more crime that occurs there than residends realize since it is kept under wraps by the PD.
The NY Times article has now made it to the top of their “most emailed” stories list.
Everyones mailing it to their friends, the ones they “told” not to buy with the one-line caption…”I TOLD YOU SO!”
As much as I hate the NY Times, that calculator is nice.
“James Bednar Says:
Who, exactly, thought that prices were “out of whack” in early 2003?”
jb
I did. Bidding wars in my area started in 2000 and were exasperated by 2001 and 9/11 and the stock market crash. By 2003, house prices were 60-70% above those 3 years earlier. I call that pretty “out of whack”.
That little calculator is great. It even has an advanced settings tab.
http://www.nytimes.com/2007/04/10/business/2007_BUYRENT_GRAPHIC.html
It’s funny to plug in a realistic home price of $650,000 and watch the graph explode into negative territory.
Combine that little tool with the Shiller Chart, and you have your ticket out of Greater Fooldom.
Shiller Chart of home prices for last 100 years:
http://graphics.nytimes.com/images/2006/08/26/weekinreview/27leon_graph2.large.gif
BC/JB In my opinion in early 2003, prices were still reasonable. By mid to late 2003 they started to get out of control.
By the end of 03, begining of 04 they appeared to be stabalizing.
And as such the industry’s response was the intorduction of I/O, and all the other toxic financing, which then blew prices threw the roof for the balance of 2004, and all through 2005.
It is my humble opinion that we need to get back to at least early 2003 pricing, before it makes sense to purchase a house again.
Great NYT calculator. Thanks!
I realistically put the house appreciation in the negative. Whoaa… the graph screams to Rent.
Amazing how quickly psychology of this market is changing. It seemed to happen overnight.
RentinginNJ Says:
From a Citigroup press release:
This sounds like code for moving jobs away from NY/NJ to other lower cost locations.
I was just down in Atlanta with my wife last weekend. After driving around and checking the place out for a few days, I wouldn’t hesitate to move down. You can tell things are going on there. Not like here where corporate america is hanging on until it’s time to move to a lower cost location
Holy Cr@p. According to that calculator, due to the fact that my rent is essentially stabilized, and with a fairly low appreciation rate (assumed depreciation, then stabilizing before appreciation) and a pretty low purchase price (300k) – it would never be worth it to buy in the next 30 years.
#38 Unrealtor,
Historical home prices never made much sense to me. To me, we are a society that thinks about monthly payments more than anything. Any way of knowing true affordability, which should include not just the price of home, but the interest rate and avergae household salaries?
Thanks,
Jersey4Life
Click the data points on the graph, very nice.
Kudos to whoever created this tool, it’s fabulous.
JB, does it deserve a link on the main page, under a “Tools” section?
From Marketwatch:
Citigroup cost cutting could be blessing for Poland
Amid Citigroup’s global cost cutting spree an unlikely beneficiary could emerge in the form of Poland, which is seen as a top contender to attract back-office jobs from London.
Announcing its plans Wednesday, Citigroup said a key focus will be to move around 9,500 back-office and support jobs out of its expensive main offices into lower cost locations in the U.S. and internationally.
And there are few locations more expensive than London.
“It looks like some of the U.K. jobs could go to places like Poland,” said Joseph Dickerson, an analyst at Atlantic Equities in London.
…
Poland would be an obvious choice for Citigroup because it has had an extensive banking network there since it bought Bank Handlowy w Warszawie in 2001.
I’ll be in Krakow for a few weeks in July and August.. It’s been a while since I was over for a long stay during the summer. I’ve got a little flat (pied a terre if you will) not too far from the historic downtown near all of the university campuses (AGH, UJ, etc)
jb
James Bednar Says:
April 11th, 2007 at 11:10 am
From Marketwatch:
Amid Citigroup’s global cost cutting spree an unlikely beneficiary could emerge in the form of Poland, which is seen as a top contender to attract back-office jobs from London.
grim: I said this a couple of weeks ago. C told NYC affected employees that they could accept a package, move to Poland, or else stay in NYC and accept salary and benefits equal to what they would get in Poland.
FYI – C didn’t do enough…their stock is going to continue to languish
FYI – C didn’t do enough…their stock is going to continue to languish
#41 tbw I was thinking the same thing, especially with the NYT’s, up to very recently they were parrotting the soft alnding, all will be fine with housing.
For that paper to do such an abrupt about face, with an incredibly grim out look for housing is stunning in my opinion.
Latest update from River Edge if you care a 10% increase in the elementary school budget, that is after spending their surplus of 450K, this increase only covers a small fraction of the operating budget of the new addition.
They are easing the residents into the increase. They did pat themselves on the back for keeping the increase on the existing facilities at 2.3%, under the 4% cap, the rest of that 10% increase is for the new aditions operating budget.
To make a long story short the average house in average is going to see a $267 dollar increrse for the elementary schools, plus another $265 increase for the River Dell district. So almost another $600 increase, and this does nto include the municipal and county portions which we are still waiting to find out what those increases are.
Meanwhile Oradell is moving ahead with its desire to dissolve River Dell, all the candidates that are running for the BOE for both River Dell and Oradell elementary are talking about,it (Its all over the local Town News)
Meanwhile the silence in River Edge is deafening. There are 2 vacant psots on the River Edge BOE, nobody is running for the open spots. In addition there is one spot open on the River Dell BOE, for River Edge, and again no one is running.( People will have to be apppinted to these spots, if they find any willing to join)
The current candidates running unopposed in River Edge are not even addressing the disoolution of the district, and inf act appear to act like the residents, that all is well, and nothing is happening.
Sad to see a town so much so fast.
There has to be something wrong with the calculator @nytimes.
No calculator is ever as stingy as I am. I pride myself on my bearishness and the darn thing is out-growling me. I won’t have it.
I don’t trust it.
I need to recalc the change for rent increases. That one really kills the buy.
bbb: they seemed to have built a schoolhouse on Valley Road. Big McMansion with schoolhouse style brick facade. For sale by owner. Looks more like a municipal building than a house. Same builder that is building a McMansion on Van Saun Ct (you can see it hovering above houses on Valley Road as soon as you turn onto Valley from Howland). The house that was on Van Saun Ct. was a true tear down. Builder built on top of existing foundation (crawlspace with water issues) Taxes were in the 9k range, can’t wait to see what the new construction taxes are for this cheaply built too high of a home.
Also, it is interesting to note that the section of River Edge with the highest taxes is the section with the 1940’s ranches. Most of these houses are 2-3 bedroom, 1 bath ranches with dutch basements and water issues because this is in the low part of the town. This section was always considered the “poorer” side of town, but suddenly it is just as prestigious as the colonial style houses off of 5th ave and the huge homes on and off of Summit Ave.
53 tbw Yeah I saw that one, in a word, UGLY. There will be 2 more coming on 5th Avenue, guy paid over 600k, and tore down the existing large ranch that ws on the porperty.
The plan is to build 2, but work has been slow.
If i had to guess I think this is the last of the one truck builder speculators in River Edge.
Meanwhile for most other residentsin town, it appears to be blissful unawareness. Sad to see a town change so fast.
From Reuters via Yahoo:
Banks’ results may sag
Slow. Tired. Weak. Difficult. Challenging. Not words that investors like to hear. But it’s what analysts are using to describe what to expect as major U.S. banks prepare to report first-quarter results next week.
…
Banks are struggling with narrowing lending margins, rising defaults and mortgage problems after the five-year housing boom ended and borrowers began missing more payments.
More on specific banks at the link above, Rich
#54 tbw Valley got crushed when the town did the reassessment> form what i understand particualr areas were focused on for the re-val, spots whenre the houses had not been updated in years, and the residents taxes were low.
Supposedly in the interst of fairness, these areas saw a bigger increase then others. Makes no sense to me.
The average tax bill on Valley is now just around 10k on one of those little ranches. One of the reasons I believe there has been so much for sale on that street. Of course you can another $600 bucks to that number for the schools, plus municipal and county to follow.
Just a thought: The housing bubble created huge tax increases for many towns. If the value of houses go down in towns with high taxes, how do you think it will effect towns with lower taxes? Will towns with lower taxes be more desirable?
#59 tbw ALl else being equal I would say yes, it was what helped River Edge in the early 90’s, taxes were still far more reasonable as opposed to Ne Milford Bergenfield and Dumont.
Now the taxes are out of control,a nd the test scores are falling, something the newies to town are just finding out.
PersonallY I think Paramus will benefit as their taxes are much lower than RE,a nd their schools are as “good” if not better. Also New Milford Fairlawn and Mahwah
Take a look at River Edge test scores and River Dell scores and then compare them to the 4 aforementioned towns, and the differences in scores are slight, yet the difference in taxes quite significant.
WASHINGTON (MarketWatch) — U.S. home prices will probably fall this year for the first time in at least 38 years, the National Association of Realtors said Wednesday.
Since the realtors began tracking prices of single-family existing homes in 1968, the smallest price gain was 2.0% in 2006. The average gain has been 6.5%.
“Tighter lending standards will dampen home sales a bit, but by less than a couple of percentage points from initial projections,” said David Lereah, chief economist for the realtors, in a statement. “We still forecast 2007 to be the fourth highest year on record for existing-home sales, and housing remains a great long-term investment.”
Lereah urged people who are “uncomfortable” with the terms of their mortgage to refinance quickly before rates rise.
Hey Lereah- if people just switch to a higer rate but more conventional product they still won’t be able afford their monthly payment. ARM’s were the only way they could buy that dream house that your Realtor “helped” them find.
#54 tbw Valley got crushed when the town did the reassessment> form what i understand particualr areas were focused on for the re-val, spots whenre the houses had not been updated in years, and the residents taxes were low.
The housing bubble didn’t treat all houses alike. Lower-end (i.e. smallish/starter homes) houses saw the greatest appreciation relative to bigger and nicer houses. While some POS starter capes tripled in value, high-end homes “only” went up 80 – 100%.
When towns get reassessed, lower end homes are getting hit the hardest. This is especially true in towns with many nicer homes and commercial property.
From MarketWatch:
Realtors see home prices falling in 2007
Tighter lending standards will reduce sales even more, forecast says
…
Lereah’s new forecast:
• Existing home sales down 2.2% to 6.338 million in 2007 from 6.478 million in 2006. A month ago, Lereah was forecasting a 0.9% decline. Sales fell 8.5% in 2006.
• New-home sales down 14.1% to 904,000 in 2007 from 1.053 million in 2006. A month ago, Lereah was forecasting a 10.4% decline. Sales fell 17.9% in 2006.
• Housing starts down 18.4% to 1.47 million in 2007 from 1.80 million in 2006. A month ago, Lereah was forecasting a 16.7% decline. Starts fell 12.9% in 2006.
• Spending on residential construction down 13.6% to $503 billion from $582 billion in 2006. A month ago, Lereah was forecasting a 12.8% decline. Spending fell 4.2% in 2006
More at the link above, Rich
I’m late once again. Grim posted this info on the front (home, main, top, etc.) page.
#60 Bergen Buyer: I am ssuming prices gains based on inflation. Because prices did not rise for 10 years in Bergen county after the last real estate bubble popped>
#61 Rich in NNJ:
And we are only in early spring 2007. Wait until this winter and Liareah will be eating crow.
Re Citigroup layoff from NYC
About 1,600 jobs are expected to be eliminated in New York City, where Citigroup currently has 27,000 employees. An additional 200 jobs will be lost in New York State, about 75 jobs will be cut in Connecticut, and only a handful will be shed in New Jersey.
It is not too bad for tristate area.
CC
I triesd the NY Times rent/buy calculator, and the results are as follows.
If I pay 360K for my POS dream Cape, with 20% down and a 6.25 mtg rate, and assuming my rent goes up 4% or less a year, it will not make sense for me to buy until 12 years from now. (By the way my rent has not gone up in the 3 years I have been there.)
Do we ask ourselves why bother then?
I tried it on the place I’m renting now. Assuming that prices go down 10%/year for 3 years, and then up 5% after that, it would take 18 years to break even.
Actually, that can’t be right. That assumes 2 buy/sell transactions.
bergenbubbleburst & hobokenite – renting an apartment versus buying a home will never, ever be a fair comparison, since you are talking about two things of with two very different values. I think the calculator is only valid if you are comparing renting an apartment versus buying that same apartment or renting a home versus buying that same home. What do you think?
Jersey4Life,
Agree, the rental and purchase prices should be for equivalent properties.
jb
I did the calculator comparing SF homes that I know are for sale, with comparables for rent. They are similar size, with same schools.
It really does depend on the rental market in your area. For example, I can buy a nice split for $325k or rent it for $1800, so I’d breakeven after 15 or 20 years.
This thing is nasty, but every realtor or lender should be required by law to run the numbers with potential buyers, then have the people sign a form that says, “I understand that I may be paying a $XXXXXXX premium for the priviledge of renting this house from the bank versus renting this house from Joe Schmoe.
Whew. Talk about market killers. Isn’t there some builder/advertiser who is telling NYT to pull this thing down yet? Where’s Barbara Corcoran? Shouldn’t she be e-mailing them to cease and desist on the calculator thing?
#70 Jersey4life: I certainly know that, and I would think that miost do.
I am comparing the rent on my 3 bedroom 2 bath house with a 450K POS cape at a 20% discount making it 360K (where I would conceivably buy) Anyhow at 360k vs my rent, according to the NYT calculator it will not make sense for me to buy until 12 years out.
And thats when I said then perhaps why bother.
Some of us on this site are renting hosues, nto apartments, and like I said my rent has not been increased in 3 years, yet property taxes have increased almost 40% in that same time frame.
bergenbubbleburst,
Now it’s clear – house rent versus house buy.
Thanks,
Jersey4Life
I think this NY Times article and calculator will finally make it clear to many what a premium you pay when you buy, a point I have been trying to make for almost two years with friends and family since I sold my house in ’05 and decided to rent for a while. Now they think I’m a genius instead of a suspected crack smoker.
If you haven’t yet checked this creative use of housing price data, you must:
http://video.google.com/videoplay?docid=-2757699799528285056
Not sure if this has been posted here before but someone just sent it to me.
Is the Real Estate “Bubble” Going to Burst?
A lot of hoopla has been floating around the news media lately about the “bubble” theory of real estate, that is, the theory that the real estate market is going to burst. In my opinion, this theory has no merit. This article is a revision of a previous article I wrote in 2002 when many people in the media were playing the same tune…
#74 Jersey Sorry I guess i should have maed that celar in the begining.
XJ: is your user name Jeep related? just wondering..
Jersey4life,
Yes, I’m currently renting a condo. So I was comparing my rental against the cost of buying a similar condo in the same building.
Playing with the graph. I have to tell my wife that we never should have purchased our house…
The graph computes buyers costs, which I understand. But they appear to be pretty high at 4%. Also, I’m not sure why there are seller’s costs in the equation. Sure the 6% throws things out of balance in the charts first few years.
I tried to go back in time to 2000. The rate of return on money back then would have been negative for most Americans. There is a spot for tax rate, but is it for tax deductible mortgage interest or interest income on investments?
The very nature of the conversations on this blog lead me to believe that most of us are more fiscally sound than the general public. But I believe that people in general benefit from the forced savings of owning a home. Unless they tap their HELOCs for flat screens…
(#78) thatbigwindow,
Not related to Jeep at all and not my initials. Just an easy and unique two-letter identifier that I haven’t really seen anyone use before.
#80 db2: Good Points, but one has to ask how much forced savings is it, especially with prices going down.
For instance during the last down turn my first house stayed flat for 10 years, in fact I lost money on it when i sold it 10 years after I purchased it,
One can argue that if you stay for 20 or 30 years, and even if when selling ti at that point you only get what you paid for it, and your mtg is paid off, then at least you walk away with the proceeds, as opposed to the renter who will have nothing,and who too might not have saved a diem over the years.
But what did it cost you inall that interest and property taxes that a homeowner pays over the years, plus the maintenance.
My plan when I purchase again is to put a big chunk down, and aggressively pre-pay it, thus mitigating dramatically the interest charges.
Even if when i sell it in 20 years I only get what I paid for it, I will walk out with the proceeds. Most people I belive will expect to make a ton of money, and nothing less.
So yes I agree for many it will be their only form form of savings, but it should not be their only form,and it will be an extremely expenseiv one, once all the costs are tallied.
#78 tbw: Hope I did not bore you with my ramblings on River Edge
“Easy to Get a Loan. Interest rates being so low for so long doesn’t hurt either. But, it’s more than low interest rates, it’s how EASY it is to get a loan. Lenders figured out over the last 15 years that instead of loaning only to people with good credit, they can make money by lending to people with bad credit. Also, the Internet has led to fierce competition among lenders making it extremely easy and cheap to borrow money.”
XJ [76], From your link.
Sorry, this bear is still growling. The spigots have been turned off. The spreads were so wide that the investors have fled. You think they would update this nonsense.
Bergen:
Your plan is similar to us. We purchased in 2000 and put down almost 30%. We paid it off last October. I thought the markets were proped up for the election, so I pulled money out and paid it off (boy was I wrong). We bought in a nice area outside of Philadelphia. Times have really changed, we could never afford our house today, let alone pay it off early.
#85 Db2 You ahve said it all right ther, you could nver afford you house today….., and that is why prices have to and are declining.
You purchased in 2000, so you should be OK. More importantly it is paid for. Congrats on that accomplishment.
Hahah – no offense to XJ, but this is the author who wrote the article.
http://www.legalwiz.com
This guy is clearly a GENIOUS! Here is “What’s Hot:”
“Flipping” is the buzzword of the year in real estate flipping books, flipping articles in the newspaper, and even flipping shows on TV! What is flipping, how does it work and how you can profit?
More Info >>
Purchase the audio recording of Attorney William Bronchick’s recent “Owner Financing Workshop.” Learn how to buy and sell properties without banks or credit!
This is a LIMITED TIME OFFER!!
Act quickly before it’s gone forever!
Off to go get my credit card!!!!!!!!!111111111
#83 bbb: I very much enjoy hearing River Edge ramblings…
:)
Citibank NYC jobs moving to Buffalo? They must be getting some sort of subsidy for that..
Then again, how many muckety-mucks in NYC would want to move, it’s a not so subtle way of getting folks to quit..
Then again again, if folks end up keeping the same salary, it would go a bit farther in the Buffalo area, and the suburbs (Amherst, Tonawanda, Williamsville, Grand Island) are pretty nice..
Does anyone else think that the mainstream media trails medium/long term trends in most markets (stocks/bonds/real estate) by at least 6 months? it took them that long to even mention a change in the real estate market. My family and friends thought I was smoking something when (thanks to forums like this) I was talking about a downturn in the market last spring. so…could it be possible that a recovery is much closer now that the mainstream has caught up…perhaps as little as a year?
I’ve both rented and bought. I bought in 2006 and my house is probably worth 15-20% less than what I bought it for if we had to sell today. But we have 20% equity so it is a wash, other than a few thousand in closing costs. We are living where we want to live and are in a fixed rate loan that we can affford, so we have no regrets. There was no rental inventory in the town we wanted to live in, and the thought of renting and having to move if house was sold out from under us was enough to make us want to buy. However we certainly realized it was not prudent to go into it without at least 20% down – if we didn’t have it we would have rented and saved for down payment rather than an IO loan or adj rate etc