Interesting Q&A question over at CBSMarketwatch: Q. Why is there such hoopla about homeownership and building equity? The way I look at it is that homeownership actually reduces equity. For example, a $200,000 loan at 6 percent will result in a $1,200 a month payment. Over the first five years, that works out to $58,000 in interest. Add utilities ... and property taxes ... and you [could be] in the hole for $93,000 to build equity of $14,000. Now if you rent a place for $1,000 a month, you have paid $60,000 to someone else to put a roof over your head. But you saved $33,000. Of course, this is without tax implications [or] the cost of maintenance, which I also did not consider. Given the current state of housing do you think it is still advisable to jump into housing market to build equity? Answer: Even if the figures you cite were accurate, you still forget the most important part of the equation -- appreciation. While not guaranteed, it is likely that the value of your property will increase over the time you own it. By how much is anyone's guess, but the longer you hold the place, the better the chance that you not only will get more than what you paid when you sell, you'll get a lot more. Another point that you overlook -- you're not alone on this one, though -- is that your gain is not based on the original price of your house but the amount you invest in it. In other words, if you put up $40,000 to buy a $240,000 house (resulting in your $200,000 mortgage) and sell it for $480,000, you did not double your investment, you increased it by many times more because you only put $40,000 into the deal, not the full price. Also left out of your reasoning is that property taxes are deductible on federal income tax returns as well as the interest of the mortgage. For a taxpayer in the 28 percent bracket, that shaves more than $16,000 off your total cost number. Ownership, though, is not just about the money. The money is nice, to be sure. But with a home of your own, the place is yours do to with exactly what you want. Paint the walls green? No landlord to tell you no. Loud music at 3 a.m.? Well, you still can't disturb the peace, but within reason? Sure. Then, there are the studies that show owners tend to take more interest in their environs and are better citizens because of it. And children of owners tend to do better, too. Not everyone is cut out to be an owner, of course, nor does everyone aspire to be one. But all things being equal, it's probably the best choice for most folks, financially as well as psychologically. ------------ Like I said many posts ago, apartments are shit.
Residential housing doesn't crash, it subsides. Slower turnover. If you have a home listed for 6 months with few lookers and fewer offers, naturally, sooner or later you drop your price contingent upon your urgency. When done en masse.......................... Of course with normal nationwide appreciation at 4 to 7% per annum and if you provided 20% appreciation to someone you enthisiatically bought from, it may eventually seem like of crash if you have to repeately lower your price to get out. Neither supply nor demand is the issue. Affordibility is.
Buying power. Due to the current interest rate environment people are granted excessive buying power, i.e. margin. I believe the recent price appreciation and demand are not necessarily correlated. IMO demand has stayed constant while buying power has broken down barriers for entry into certain price ranges. Note this is also regional - how would you explain higher relative prices in CA as compared to the midwest? CA is certainly not affordable and the demand IMO has remained constant yet people are given the ability to "afford" more with questionable lending practices. Mike
definately, people(with 60k income a year) are reaching out in eastern san diego, paying up to get interest only loans for 550k homes, 50 years old in fair at best shape, its gonna get ugly
Good grief. Don't tell me the housing is crashing folks are giving up or changing their view once again. First it was housing was dead last year. Then all the homebuilders went on a tear. Now housing is going to subside? Crashes are greater than 10%? Lahooo Zahers!
What you say about the migration is so true...Back in the 70's, I was living in the Ft Lauderdale area....in 86, I decided to move further north due to congestion and bought in West Palm Beach.....Then around 96 I was looking to leave Palm Beach County and was all set to go further north still up to Brevard County....Satellite Beach area to be more specific.....But unexpected health problems required me to come back to Eastern Long Island which is my birthplace so my relocating to Satellite Beach never did take place.... Since being back on long island, I am no longer considering Brevard County as I am looking very closely at Destin, Ft Walton Beach area or could be Wlimington, NC....Nothing concrete as of now.... But your right on about the in state migration taking place in Florida....Congratulations to you and your wife for it seems after reading your posts that you have given your business much thought before hand and had a solid business plan.....And you also could be right about the Lake Placid area as your next targeted area... Finally, I would to ask you how are the module homes you deal with when it comes to hurricane protection?...I realize they are much better than say a mobile home and it is a shame in a way that the public hasn't more knowledge on Module Homes...... Wishing you continued success
Also figure home office deduction; home office depreciation. Dont know where they got the title of crash, houses went down about average 20 % in the great depression; thats a correction , in a bull market, not a crash