Real Estate Crash thread

[Danno]

I wish I had money to buy right now.

Though my market has done nothing but go up, I still think there's good deals here.

[mcsquared]

Well, since you mentioned it, the Dow is a much better long term investment than a house.

You sure about that?
I am sure we could argue about this all day, as it seems we have both made up our minds. But I disagree.

[Cono Este]

My Daddy used to say, in bad times, it's much better to make 3% than lose 25%.

.

Ahmen to that.

Concentrate on what you do best and protect your earnings. MD9 obviously has some some skills and a knack for real estate. Its his career so to speak.

[ColMan]

"Many factors have propelled the unraveling of American real estate, from the mortgage crisis to a staggering excess of home construction, making it hard to pinpoint the impact of any single force. But economists and real estate agents are growing convinced that the rising cost of energy is now a primary factor pushing home prices down in the suburbs, particularly in the outer rings.

More than three-fourths of prospective home buyers are now more inclined to live in an urban area because of fuel prices, according to a recent survey of 903 real estate agents with Coldwell Banker, the national brokerage firm."

Figures 1 and 2 near the bottom of this whitepaper illustrate how the outer rings of the burbs are getting hit the hardest.

http://www2.standardandpoors.com/spf...s_collapse.pdf

[grapedrink]

Ahmen to that.

Concentrate on what you do best and protect your earnings. MD9 obviously has some some skills and a knack for real estate. Its his career so to speak.

md9 lives in a real estate never never land

[Benny Profane]

You sure about that?
I am sure we could argue about this all day, as it seems we have both made up our minds. But I disagree.

Yes. Look it up. The returns on the Dow since 1930 vs real estate. I'm busy. And if you wait an hour or two, the Dow will look even better.

[mcsquared]

Yes. Look it up. The returns on the Dow since 1930 vs real estate. I'm busy. And if you wait an hour or two, the Dow will look even better.

No, I won't look it up. You tell me what the numbers are and we can start there. If you are just going to tell me that the Dow has returns 8% and Real Estate returns 5% and therefore stocks are better than you obviously are missing the bigger picture.

[Cono Este]

Yes. Look it up. The returns on the Dow since 1930 vs real estate. I'm busy. And if you wait an hour or two, the Dow will look even better.

Yeah but real estate is leveraged, and you dont pay tax so long as you roll the property when you sell it.

[Benny Profane]

What's the big picture?

[Pow4Brains]

The radio this morning (850 KOA) said the Denver Metro area is starting to climb again (pricing increasing, but from what I don't know) and that the housing market has appreciated 28% since 2000.

[cramer]

I wish I had money to buy right now.

Though my market has done nothing but go up, I still think there's good deals here.

Well for 1st time buyers, you can get a loan pretty easy. We prequal'd for 350K loan. Its FHA and only requires 3% down. Which can be gifted, taken as a loan out of your 401k, etc. Our credit is crap, but our debt/income ratio is good. if you dont owe alot of money, no foreclosure/bankruptcy you are pretty much golden to get approved. we make about 110K a year combined. I have a car note and probably 200 a month in cc billz with about 4000 total owed on credit. I live in the bay area cali, so this is probably my one and only chance to get a house down here for another 20 years. Wish me luck.

[liv2ski]

Well, since you mentioned it, the Dow is a much better long term investment than a house.

Benny, I disagree with your last few posts. Let me explain why.
As previously noted, So Cal property has easily doubled in values every 10 years as far back as I can remember (about 1974). My mom's place was bought that year for $60k is presently valued at $650k. My home bought in 1984 for $200k is a steal in todays market for $1M.
Point 2: Real Estate in CA is way better investment than the stock market. Let us say you have $100k in the market averaging 8%. At the end of 10 years you have $160k.
If you bought a home today for $500k, put 10% down and had the seller pay your costs, you would only have $50k into the home and the other $50k still in the market at 8%. In 10 years, forget the double, call it a $750k value. Minus 10% cost of sale, gives you a $175k return that isn't taxed on the sale of a primary residence. Selling your stock will be taxed.
I know, what about the mortgage payment and maintenance expense compared to renting. PITI and maintenance is $3,348 per month. You could rent the place for $1,700 year 1. I an guessing by year 10 that is more like $2100. Say you earn $100k a year to qualify for said loan. Buying reduces your taxable income by at least $32k due to interest and tax write offs. That is close to a $13k tax difference when filing each year between owning and renting. Plus you still have the other $50k invested earning a return to offset any payment differences. Actually at this point, I know owning is better, as you also have reduced the loan balance by $73,400 over 10 years.
The leverage you get on real estate always kicks the stock market ass in the long haul IMO, as few people have the skill to leverage their stock market investments with any success.
Long term financial success=owning real estate were people want to live.
Just my 2 cents

[CUBUCK]

Well, since you mentioned it, the Dow is a much better long term investment than a house.

I thought you said the stock market was a rigged game to screw the middle class?

[kokomas]

^^^ what he said.

[jbach]

My mom's place was bought that year for $60k is presently valued at $650k. My home bought in 1984 for $200k is a steal in todays market for $1M.

That's about a 7.25% return. If your mother had invested in an S&P 500 index fund from 1974 through 2007 (sorry I haven't updated my data through 2008 yet, but the change is negligible over this long a time span) she would have $2,555,748. That's nearly $2 million more than she got out of the house. The S&P 500 return over that time span ended up being about 12.07% annually.

Point 2: Real Estate in CA is way better investment than the stock market. Let us say you have $100k in the market averaging 8%. At the end of 10 years you have $160k.

Do you know the meaning of compounding interest? That would be $216k after 10 years at 8% compounded annually.

If you bought a home today for $500k, put 10% down and had the seller pay your costs, you would only have $50k into the home and the other $50k still in the market at 8%. In 10 years, forget the double, call it a $750k value. Minus 10% cost of sale, gives you a $175k return that isn't taxed on the sale of a primary residence. Selling your stock will be taxed.

Despite the fact that I'd be surprised to see ANY appreciation in the next 10 years, especially nothing on the order of 5% annually in CA, you're not taking into account interest or anything. Over 10 years you'd pay nearly $300,000 in interest on that loan. Sure, you'd have $80,000 in equity and $175k in profit netting you $200k, but that's the power of leverage. You could borrow money to invest in the market and do the same thing with likely much better results.

I stopped reading the rest...I don't trust your math and you did a lot of funny stuff in the next paragraph.

[cranked]

Well for 1st time buyers, you can get a loan pretty easy. We prequal'd for 350K loan. Its FHA and only requires 3% down. Which can be gifted, taken as a loan out of your 401k, etc. Our credit is crap, but our debt/income ratio is good. if you dont owe alot of money, no foreclosure/bankruptcy you are pretty much golden to get approved. we make about 110K a year combined. I have a car note and probably 200 a month in cc billz with about 4000 total owed on credit. I live in the bay area cali, so this is probably my one and only chance to get a house down here for another 20 years. Wish me luck.

FHA loans at 3% come with points, not to mention mortgage insurance. 12 months ago, you could go in with 5% down out here, get a Home Equity LOC and skip the PMI, no points. The loan you speak of is BRUTAL compared to what buyers were getting last year this time. For 350k, I am assuming you are looking in the east bay, closer to Concord or Livermore...those places are imploding. Are you sure you want to jump in the market right now?

EDIT: I am looking at places in the city...the lending practices have changed so dramatically, it is amazing. Even with the higher Jumbo Loans (moved up to 720k), lending is so tight, that 1 in 60 people WITH EXCELLENT CREDIT get approved for them. For the first time in the last 8 years, I am happy to rent right now. I am hoping rates rise, credit keeps tightening, and some sanity returns to San Francisco...at some point, couples will not be able to afford 2bd/2ba places for 900k. I just don't see how that is a sustainable price for a "starter home" in the city. We are waiting right now because we are looking for 3bd places, and it just seems ridic...there has to be a reversal, or at least a flattening, of home values.

Of course, I have been saying that since 2002.

[up an down]

good post. and just to further complicate it as far as stocks go, very few ever try to factor in trading and tax costs, but i even more rarely see anyone factor in all the tax and maintainance costs of real estate

That's about a 7.25% return. If your mother had invested in an S&P 500 index fund from 1974 through 2007 (sorry I haven't updated my data through 2008 yet, but the change is negligible over this long a time span) she would have $2,555,748. That's nearly $2 million more than she got out of the house. The S&P 500 return over that time span ended up being about 12.07% annually.




Do you know the meaning of compounding interest? That would be $216k after 10 years at 8% compounded annually.



Despite the fact that I'd be surprised to see ANY appreciation in the next 10 years, especially nothing on the order of 5% annually in CA, you're not taking into account interest or anything. Over 10 years you'd pay nearly $300,000 in interest on that loan. Sure, you'd have $80,000 in equity and $175k in profit netting you $200k, but that's the power of leverage. You could borrow money to invest in the market and do the same thing with likely much better results.

I stopped reading the rest...I don't trust your math and you did a lot of funny stuff in the next paragraph.

[Benny Profane]

Of course, I have been saying that since 2002.

Keep the faith. I felt like a jerk many a time since then, too, but I had no clue about this subprime thing. I'm stunned at the stories I read, and I'm stunned that some are still getting no money down loans, but that just proves how many on all sides are still in denial. Homes are still way overvalued, and have a long way to go to reach the historical mean. Don't believe the hype, and rent a place with nice landscaping included - oh, and heat, too.

[cramer]

FHA loans at 3% come with points, not to mention mortgage insurance. 12 months ago, you could go in with 5% down out here, get a Home Equity LOC and skip the PMI, no points. The loan you speak of is BRUTAL compared to what buyers were getting last year this time. For 350k, I am assuming you are looking in the east bay, closer to Concord or Livermore...those places are imploding. Are you sure you want to jump in the market right now?

EDIT: I am looking at places in the city...the lending practices have changed so dramatically, it is amazing. Even with the higher Jumbo Loans (moved up to 720k), lending is so tight, that 1 in 60 people WITH EXCELLENT CREDIT get approved for them. For the first time in the last 8 years, I am happy to rent right now. I am hoping rates rise, credit keeps tightening, and some sanity returns to San Francisco...at some point, couples will not be able to afford 2bd/2ba places for 900k. I just don't see how that is a sustainable price for a "starter home" in the city. We are waiting right now because we are looking for 3bd places, and it just seems ridic...there has to be a reversal, or at least a flattening, of home values.

Well, with my credit, my loan will be brutal anyway you look at it i imagine. At least mine will be a fixed rate and i wont be like all my friends and relatives who either A. lost their house, B. are paying like 4-5K a month for a house that ill be paying 2K a month for and their rates will still adjust.

as for buying now, im not sure. Can the houses go any lower? Ya, im looking east bay. I can get 4-5br/3ba with pool, updated kitchen/bathrooms 2000+ sq ft for like 250K. I just dont see them dropping any lower. These houses were like 500K. This is longterm and my first house. So 10 years from now, i would hope its worth 350K? I dont know, im no real estate genious. What i do know is that im paying 1745 a month in rent when i could be paying that on a mortgage. Seems to me its a no brainer to pay that a month on something i own and get a tax write off to boot. but im all ears to suggestions on waiting and why to wait longer. One thing i DONT want to happen is to get priced out of a house again.

ya im looking outskirts. Vallejo, american canyon, concord, livermore, brentwood, oakley, etc. I already commute, so not too worried about that. Just looking to get the biggest bang for my buck since it will be what i call "home" for the next who knows how many years. I work in concord, so pretty much anything east and north im willing to look at.

I dont know that city houses will ever drop. Look at san ramon, walnut creek, etc. They are a half hour out of city and they've hardly lost any value. That whole 680 corridor seems to have maintained values or lost very little compared to the 50%+ drops out in suburbia.

[jbach]

Let's look at our most recent bubble, tech stocks in 2000:



As you can see, even if you bought after the NASDAQ had retreated 30% off its highs, after 10 years, you're still losing a great deal of money. The investors that bought after a 50% decline are just now starting to break even. Houses are not as liquid as stocks...if you have to move, you pretty much have to sell, and when you buy something for $250k then it drops another 25% before you need to sell, you have to come up with $60,000 just to pay back the difference between the loan and the selling price. And you thought saving for a down payment was tough...

[liv2ski]

That's about a 7.25% return. If your mother had invested in an S&P 500 index fund from 1974 through 2007 (sorry I haven't updated my data through 2008 yet, but the change is negligible over this long a time span) she would have $2,555,748. That's nearly $2 million more than she got out of the house. The S&P 500 return over that time span ended up being about 12.07% annually.

Do you know the meaning of compounding interest? That would be $216k after 10 years at 8% compounded annually.

Despite the fact that I'd be surprised to see ANY appreciation in the next 10 years, especially nothing on the order of 5% annually in CA, you're not taking into account interest or anything. Over 10 years you'd pay nearly $300,000 in interest on that loan. Sure, you'd have $80,000 in equity and $175k in profit netting you $200k, but that's the power of leverage. You could borrow money to invest in the market and do the same thing with likely much better results.

I stopped reading the rest...I don't trust your math and you did a lot of funny stuff in the next paragraph.

Jbach, your way off base in your analysis. That $60k home was bought with a $12k investment. My $200k home was bought with a $40k investment. My $40k investment has grown to $1M as the home is free and clear after 23 years. Plus I don't have any tax on the 1st $500k when I sell it. Compare that to a $40k in the stock market over the same period of time and good luck on getting the same net return.
Sorry my math lost you, but it accounted for all the variables.

[Benny Profane]

Benny, I disagree with your last few posts. Let me explain why.
As previously noted, So Cal property has easily doubled in values every 10 years as far back as I can remember (about 1974). My mom's place was bought that year for $60k is presently valued at $650k. My home bought in 1984 for $200k is a steal in todays market for $1M.
Point 2: Real Estate in CA is way better investment than the stock market. Let us say you have $100k in the market averaging 8%. At the end of 10 years you have $160k.
If you bought a home today for $500k, put 10% down and had the seller pay your costs, you would only have $50k into the home and the other $50k still in the market at 8%. In 10 years, forget the double, call it a $750k value. Minus 10% cost of sale, gives you a $175k return that isn't taxed on the sale of a primary residence. Selling your stock will be taxed.
I know, what about the mortgage payment and maintenance expense compared to renting. PITI and maintenance is $3,348 per month. You could rent the place for $1,700 year 1. I an guessing by year 10 that is more like $2100. Say you earn $100k a year to qualify for said loan. Buying reduces your taxable income by at least $32k due to interest and tax write offs. That is close to a $13k tax difference when filing each year between owning and renting. Plus you still have the other $50k invested earning a return to offset any payment differences. Actually at this point, I know owning is better, as you also have reduced the loan balance by $73,400 over 10 years.
The leverage you get on real estate always kicks the stock market ass in the long haul IMO, as few people have the skill to leverage their stock market investments with any success.
Long term financial success=owning real estate were people want to live.
Just my 2 cents

Well, #1, do you really want to live in SoCal?

And, did you pay property taxes? Replace the boiler? Heat the water? Landscape? Paint? Replace the roof? Do the kitchen? New Bathroom? Extension?

Pay interest?

[liv2ski]

as for buying now, im not sure. Can the houses go any lower? Ya, im looking east bay. I can get 4-5br/3ba with pool, updated kitchen/bathrooms 2000+ sq ft for like 250K. I just dont see them dropping any lower. These houses were like 500K. This is longterm and my first house. So 10 years from now, i would hope its worth 350K? I dont know, im no real estate genious. What i do know is that im paying 1745 a month in rent when i could be paying that on a mortgage. Seems to me its a no brainer to pay that a month on something i own and get a tax write off to boot. but im all ears to suggestions on waiting and why to wait longer. One thing i DONT want to happen is to get priced out of a house again.

50% price drop????
That is unreal. It may go lower over the next year. So here is what you do. Interview a few agents and let them know your serious about buying in the next year as soon as the can show you month over month price stability or improvement for a 3 month period of time in the area your looking at. Once stability is reached and that becomes evident to the masses sitting on the sidelines, there will be a big all in pop over the next 12 months IMO and then a more gradual increase from there moving forward.
Keep on your toes and monitor the area you are looking at closely over the next 12 months. And BTW. You need to fix your credit now if you want to buy a home. Get together with someone that has been doing loans for 10+ years and that has FHA experience. They can get you on the right track to have your self fixed up in a few months.
Good luck.

[liv2ski]

Well, #1, do you really want to live in SoCal?

And, did you pay property taxes? Replace the boiler? Heat the water? Landscape? Paint? Replace the roof? Do the kitchen? New Bathroom? Extension?

Pay interest?

All in the math. Man you guys are lazy.
Benny do what works for you. However, ever millionaire I personally know started out as a hard working regular guy buying rentals 20-30 years ago. The 10-20% down gave them great leverage on their investments. Save money, buy more property. Property appreciates, trade 1 into 2 or 3. Time goes by and your rich.
Just look at the other guy posting on this thread that is buying stuff for $50k today. In 20 years, that dude should be rich.
Yes, I will stick with So Cal as most anyone that visits my area wants to live here. If your ever in San Diego, PM me, I will show you around.

[Benny Profane]

All in the math. Man you guys are lazy.
Benny do what works for you. However, ever millionaire I personally know started out as a hard working regular guy buying rentals 20-30 years ago. The 10-20% down gave them great leverage on their investments. Save money, buy more property. Property appreciates, trade 1 into 2 or 3. Time goes by and your rich.
Just look at the other guy posting on this thread that is buying stuff for $50k today. In 20 years, that dude should be rich.
Yes, I will stick with So Cal as most anyone that visits my area wants to live here. If your ever in San Diego, PM me, I will show you around.

San Diego is nice.

Rentals are different. That's a business. Not what I'm talking about.