Well this is probably the truth because this would be the worst thing for me. Also when I look at the japan home price drop as in the picture I posted earlier http://en.wikipedia.org/wiki/Image:EconomistHomePrices20050615.jpg I see 15 years to get back to what might have been normal inflation.... So if we follow that path at all, it will end up being about 15 years before a home starts to turn profit... so the new rule is buy if you want to live there and hold the property for 30 years, don't buy as an investment thinking that your home will take care of you in the future. Unless the future is 30 years from now.... That would be one way of looking at this data.... ...pretty much the worst case for me personally, but somehow seems to ring true.
People need to remember that the average person lives in a home about 6 years. In other words, in the hot markets we will have people moving away, or across town and they will have to sell their homes. At which point, prices will come down because the next generation of buyers do not have the same super low interest rates and nearly non-existent lending standards to qualify with. They simply cant get loans at these price levels, so sellers will have to come down to meet them. This constant rotation of real estate will lead to the constant grind down until we reach a level that is more realistic and in line with reality and fundamentals. I think we will hit 2003 prices within 2 years, wild guess, and then continue down at a slower pace.
It might not take the US as long as it took Japan though. US always seems to prefer drastic and fast way to cure problems. In Japan, culturally laying off people and cutting unnecessary things off have been a hard thing to do, as the government and the community does not want anyone to suffer from major changes like not having jobs, etc. Therefore, the entire country is sinking, but people there don't feel strong pains, cause the most of them still have jobs, and thanks(?) to deflation (I know it's not good for the country), things are much cheaper. So over the past 10 or 15 years, people mentality and attitude have changed (they thought that they would reach the sky. ; ), but the living standard has been still good. But in the US, unnecessary things and people get let-go, so it hit the bottom faster and rebound from the bottom faster. Japan sees the US approach positively, and have been trying to move things a bit faster.
Well, that has been historyically true, but new factors could change that. For example - in CA, you pay the tax on your home at the price you bought it. For life. So the person who has the 1,000,000 home (not at all uncommon here) that they paid 500k for 3 years ago (very common). They have a life which involves a probably paid off home and maybe 500k / month in property tax. If that person buys a new home, they would now need to pay 1000 /month just in property tax - and that's if they moved to an exactly equivalent home. Now think about the person who bought that 1 million home for 200k. Back when that was maybe an extra 100 dollars a month, I could see it not being as much an issue. I have to imagine it comes into play now.
Thats a good point about taxes, but many people move because they dont have a choice. Every single friend of mine who has moved away from san diego left because of work related issues. Most couldnt find jobs that paid well enough.
(Before anyone corrects this... I said "propbably paid off home" - that was meant to be deleted, I originally started with a different example but changed it to the 3 year one because I thought it made more relevant impact.)
So a property tax is set based on your purchased price, not on the current value of the house? For a life? I've never bought a house, and missed the boat for housing bubble. As of the situation right now, it's hard to believe that the housing market would go up like it had been. I have not done math on this, but I am thinking renting might make economical sense than buying in an expensive city like SF. Especially if you want to live in a nice neighborhood...Or does owning a house still give you better financial benefits and security in the long run??? (I am not jumping in this market now, but maybe consider years later.)
Don't get married then. She will nag you day and night to buy a house.Women's nesting instincts to own a home are very strong. I have a theory that post 9/11 fears exacerbated the female nesting instinct. Many people made decisions to overpay for homes.. Finanical difficulty is one of the leading causes of divorce. I wonder how many marriages will be destroyed because people made imprudent decisions to buy a home.
I can only speak about California. And yes. What has happened (here at least) is a paradigm shift. Buying a house used to be thought of like this: It can be cheaper than renting if you can come up with the down payment and can get credit for a loan. I don't think that rule works today. Locally I've seen some new apartments that rent for around 3000/ month for a 2 bedroom. A similar type of condo would sell for 1 million or so, let's call it an even million. Let's put 20% down. Okay 800,000 load at 6%, 30 year fixed - 4796 / month. now add tax - quick calculation is 1% of full price per month - so another $1,000. Also, in an apartment, you don't NEED insurance, but for your house you do... That won't be less than 100 a month. Oh - and repairs... because your landlord is you now and you have to fix everything. Let's be super conservative and add another 104 a month for that to take us to a nice round number. $6000 / month for home with 200k down. (initially $4500 after tax deduction sch. A, but eventually 6k) $3000 / month for apartment with nothing down. What this, to me, reflects, is exactly that 3 year double in home prices. You can write off the interest portion of your loan it's true though.... and you'll be paying a lot of interest at first... but it's true that there may be a 1500 or so tax discount at the beginning which will decrease over time to nothing near the end of the 30 years. (And for traders, you can't trade that 200k anymore.) So.... something is wrong here... but that doesn't mean necessarily that anything will happen. Because there is pride in ownership. There are emotional factors. Also - most of the people in homes now got in a long time ago and I betcha they don't have any interest in facing new taxes and such. And they already refinanced at a lower rate during the finance craze. So - this will limit inventory which will keep supply limited which will, in fact, slow the crash. It's not like a stock because you don't live in your stocks. I am making no predictions here, just putting numbers on the table for discussion. (BTW to the earlier comment about people saying home vs. house - it's because of the proliferation of condos and real estate people wanting to include those and brand those as homes as well.)
Thanks for showing this in numbers. I thought that the scenario would be something like this. It's more clear to me now. And yes, there are a lot of emotional factors such as pride in ownership, women instincts, etc., so whether buying a house makes sense or not is an individual choice, of course. About a year ago, when I was looking for an accountant and I haven't daytrading actively yet (was taking baby steps to learn how to trade), I had an initial consultation with an accountant. I told him that my intension is to become an active trader so I want to find a way to make this as business for tax purpose as well in the future, and asked for his advice on how to save money on tax. Two things he said to me - first, people don't make money in day-trading, so don't think about that. second, buy a house. That's the best choice for me to save tax. I was like buying a house now??? You save money on interest payments, but what about decreasing value in your house?? Your loss in the decrease might be bigger than your tax saving on the interest ! I did yahoo search to find out where he lives, just out of curiosity whether he is doing well pursuing his own advice. He lives in one of the undesirable neighborhoods in the city. I should not judge people based on where they live, but I decided not to go to him...