I'm sorry, but there is just too much hogwash in the above claims. A 20% pullback in these current markets will see significant rises in foreclosures. You have obscene amounts of leverage in many markets these days. Certainly, you can find some sleepy midwest market such as Ohio or Indiana that has not experienced much price appreciation, hence very little speculative interest. I would agree, that perhaps a 20% pullback there, will not see significant increases in foreclosures, but even that is a big perhaps. It might be news to you but a great deal of the equity has already been spent, if/where there ever was any. Consumer spending has been driven by this recent phenomenon. Add to this the fact that many individuals have been buying homes withOUT conventional fixed rate mortgages. I'm not certain where you have been the past few years, but this is one of the driving forces behind alot of this price inflation in homes. i.e., lending standards are compromised and a greater supply of end users are afforded access to real estate markets. Did you really buy into this whole demographics trend as the sole reason for such rapid price appreciation? I could continue for awhile on this topic, but I don't want to bore you. Good day sir.
Why will a pullback cause an increase in foreclosures....BTW you said significant increase? That alone will not trigger foreclosures. What will trigger foreclosures is a change in the economy, a prolonged recession, where jobs are lost and people are unable to make payments. Let's say you are right, and prices do drop and foreclosures are up, do you really think that we will never recover and 20 years from now everything will not be fine? Let's assume for a minute that your scenario is true, we encounter a major depression, and we experience a massive deflation. The good thing about that is that any cash you have is now worth 20 times what it was worth prior to the event. If you have 50k, you just became a millionaire overnight. (assuming you were smart enough to not keep your money or assets in a bank in the US, but let's say that you kept it in a swiss account, or buried it in your back yard) For just 100k, you can completely hedge your worse case scenario and end up being a multimillionaire. And guess what, 12 or 15 years later, once again things will be fine. and you came through it just fine.
Whether or not we are in a recession as we speak can be the subject of another debate. However, I can present a few links that show a sharp increase in foreclosures at the present time. Now, are these foreclosures the result of a weakened local economy OR were these foreclosures the result of a hyper inflated local/(national?) real estate market fueled by lax lending standards and a glut of otherwise unqualified borrowers (by traditional lending standards, say pre 2002). http://www.rockymountainnews.com/drmn/real_estate/article/0,1299,DRMN_414_4578247,00.html http://www.realtytrac.com/news/press/pressRelease.asp?PressReleaseID=86 I'll find more links, but this can serve as the foundation for the debate. Good day sir.
i think that, for the average, non-savvy, non-financially oriented consumer, buying a house is the thing they should do because they won't have the ability to trade or to save or even to invest wisely. for the rest of us, buying a house may not be the thing to do. our money may be better utilized on trading or stock investments. i would say that, unless you have a very good grip on the housing market in your area (where it's been and where it's going), are planning to be there for 5 years or more, etc., you're probably better off not buying. i would do as much research on buying a house as i do on the market and any stock i'm interested in buying. another category of buyer would be the real estate investor. i have never felt i had the knack for this, so i never tried it. but someone who is as good at that as a good trader is at trading could probably make a go of it. in that circumstance, it may be worthwhile. but just as you wouldn't recommend for a novice to jump right in and start trading, it also would not be advisable for a novice real estate investor to jump right in and start buying property.
<i>The truth is, you can create a model to support both positions.</i> Not in the San Francisco Bay Area. You show me a financial model that would justify buying a house for over $800k instead of renting it for $2300/month, and I'll show you the flaws in your model. <i>One other comment, do you know anyone who actually saves more on renting vs buying that is actually investing that difference in the market?</i> Yes, me. <i>It would be great to see someone on here who supports the renting philosophy start a journal and keep it going for 30 years so we can monitor their progress and see them actually execute their RENT vs OWN plan. Any takers?</i> No. Renting is not a philosophy, and it's not something you make a lifelong committment to. It's an investment decision based on market conditions. The moment that buying a house is an attractive investment financially, I'll do it in a heartbeat, most likely with cash. Martin
No, it's about equal comparisons. You can buy an apartment. You can rent an apartment. You can buy a house. You can rent a house. They are completely orthogonal questions. Living in an apartment versus a house is a matter of personal preference. That question belongs in Chit Chat. Renting versus buying is a financial question and it belongs here in the Economics forum. Martin
princessa: "The average, non-savvy, non-financially oriented consumer" frankly has been doing pretty well. See, they were too stupid to know years ago when house prices were too high. They bought just because they felt it was a better place to live than an apartment, and they had heard that houses usually go up. Meanwhile, the savvy, financially oriented traders of ET were pronouncing housing markets dead from the time I first became a member in 2002. I'm not kidding, go back and look at some of the threads. Now here's the thing, if you had listened to some of those savvy traders, prices simply exploded. In some markets they have doubled or better. It did not matter to those non-savvy consumers out there because they weren't going to sell anyway, they were just living in the house. At this point, houses would be to drop 50% just to get back to where they were then. Now, it could be that your advice is correct. Houses are too high now, and traders can always do better trading their own account. The only thing is, statistics don't bear you out. Houses have been a continuing source of wealth for the American public since way back when. Meanwhile, 90% or so of traders lose money. Those are some mighty tall odds you're bucking. Many of those guys who were arguing against houses are no longer around. I know a few long term bears who sold their house, convinced it was going down, and then shorted the stock market KNOWING it was going to shoot craps as well. I don't see them around any more either. It really isn't all that complicated. We all need a place to live. And if you want your own place, you buy a house. Over time, you build equity. You can still trade, it's not one or the other. If it goes up in value as it always has, great. If not, what difference does it make? You're still living in the house. Nothing wrong with biding your time to buy a house. But those who believe in renting will certainly lose in the long run in my opinion. OldTrader
i live in an EXTREMELY low cost of living area (average home price 100k) and i just paid 6k to get my small house painted. got 3 estimates before committing, btw. i don't think that 10k is too high at all. on the average house in the average market.
Got a 3 story house painted a year ago for about $2K. About to get anther similar sized house painted soon for $2500. Talking about just the exterior. For a small house $6K is alot if you're talking exterior. OldTrader