39 replies to this topic

[Steve Heard]

 

Steve - I personally think the American Dream is changing.  Fifty years ago, owning a home was pretty much a given, now, not as much, and fifty years from now, I think even less so.

 

 

 

I've heard a few others say that, but the numbers don't bear that out. Check this chart. 50 years ago, a lower percentage of Americans owned homes than do today. As you can see in the chart, it started a downward trend about 2005 (that's when prices peaked) and although not on the chart, the US Census Bureau put it at 65.4% in January.

 

We'll see how this year affects those percentages.

 

 

 

 

 

Right now, it is still cheaper to buy than to rent for most areas of Sacramento County, and according to an article in Trulia it will remain so as long as rates stay below 8%

 

Example: I am holding an open house on a home in Natomas today. It is priced at $239,900. I went to mortgagecalculator.com and punched in the numbers for someone putting down 3.5% as with FHA. The payment is $1440 per month. The house is currently rented at $1450. If putting a larger down payment, the loan wood be lower and there for the payment as well.      

 

http://trends.trulia...es-rent-vs-buy/

 

 

 

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[rip]

 

I've heard a few others say that, but the numbers don't bear that out. Check this chart. 50 years ago, a lower percentage of Americans owned homes than do today. As you can see in the chart, it started a downward trend about 2005 (that's when prices peaked) and although not on the chart, the US Census Bureau put it at 65.4% in January.

 

We'll see how this year affects those percentages.

 

 

 

 

 

Right now, it is still cheaper to buy than to rent for most areas of Sacramento County, and according to an article in Trulia it will remain so as long as rates stay below 8%

 

Example: I am holding an open house on a home in Natomas today. It is priced at $239,900. I went to mortgagecalculator.com and punched in the numbers for someone putting down 3.5% as with FHA. The payment is $1440 per month. The house is currently rented at $1450. If putting a larger down payment, the loan wood be lower and there for the payment as well.      

 

http://trends.trulia...es-rent-vs-buy/

 

 

 

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Not sure what you are using for a rate or if you are including PMI, but ran the same numbers at 4.5%(the going rate) and got $1646.  According to the Zillow mortgage calculator $239k with a 3.5% down gives you a P/I of $1167, estimated tax $224, insurance $67 and PMI of $188.  I understand this doesn't take the tax advantage into consideration, but purely on a month to month basis renting is cheaper.  This is exactly what I've found in the Folsom market as well.  It seems the going rental rate for a nicer 4 bed 2 bath 2000+ square foot home in Folsom is in the $2200-$2400 range.  If you want to buy a similar house, most I've seen with the same stats run in the $450-475k range.  Assuming you had enough down payment to get to the FHA loan limit of $417k, at 4.5% interest, the monthy payment (with impounds) is around $2900.

 

I would completely agree that not long ago buying was MUCH cheaper than renting.  After rapid appreciation over the last year and rates nearing 5%, that would not appear to be the case any longer...at least if you are doing a straight comparision on monthly rent vs monthly mortgage.

[cw68]

For those in a lower tax bracket, the tax break isn't all that good. I rent a nice 1900 sq ft three bedroom with a dedicated office for $1850. I know my housing expenditures are only that so I can plan and invest accordingly accordingly. My investments are diverse and not only tired to the real estate market, which would be the case if I bought. I choose to rent. I don't want to buy.

[rip]

For those in a lower tax bracket, the tax break isn't all that good. I rent a nice 1900 sq ft three bedroom with a dedicated office for $1850. I know my housing expenditures are only that so I can plan and invest accordingly accordingly. My investments are diverse and not only tired to the real estate market, which would be the case if I bought. I choose to rent. I don't want to buy.

Excellent point.  In the example used above with the $239k home, the interest paid in the first year would be something in the range of $10k.  The standard deduction for a married couple filing jointly is $12200 for 2013.  So, unless you have quite a few other deductions or are single, the interest write off is a wash at best.

[chris v]

I have never rented anything my whole life. I bought my first place when I was 19 because I could not afford to rent. Ever since then it has never made any sense to me to rent. I can't see paying thousands a month to line someone's pocket when I could be investing it in my own.

[rip]

I have never rented anything my whole life. I bought my first place when I was 19 because I could not afford to rent. Ever since then it has never made any sense to me to rent. I can't see paying thousands a month to line someone's pocket when I could be investing it in my own.

 

Lot's of people who bought during the bubble thought the same thing.  I'm betting a lot of them wished they had rented instead.  Don't get me wrong I am a big proponent of owning a home.  Like you, I have been a home owner nearly my entire adult life, until just recently.  The only reason I sold my last home was in preparation for my move to Folsom.  That all said, the current market makes me uneasy.  The economy has improved a great deal from the depths of the recession, but it's not by any ones definition "healthy".  We still have slow growth, high unemployment and stagnant wages.  In light of this, the run up in home prices over the last year or so does not match up with the economic fundamentals.   When people compare current prices to those at the peak of the bubble and claim current prices are affordable, I have to laugh a bit.  Those prices were imaginary, only possible with the exotic mortgages available at the time.  I wonder, with the artificially low rates of the last year if we are not just inflating another bubble?  With rates on the rise we will all certainly know in the next few months. 

My sincere hope is things settle down and we return to a normalized housing market.  I'd love the idea that I could buy a home, live in it, raise my kids there, have it appreciate at 3-5% per year and in 10 or 15 years sell it for a modest gain.  I guess we'll see. 

[cw68]

 

Lot's of people who bought during the bubble thought the same thing.  I'm betting a lot of them wished they had rented instead.  Don't get me wrong I am a big proponent of owning a home.  Like you, I have been a home owner nearly my entire adult life, until just recently.  The only reason I sold my last home was in preparation for my move to Folsom.  That all said, the current market makes me uneasy.  The economy has improved a great deal from the depths of the recession, but it's not by any ones definition "healthy".  We still have slow growth, high unemployment and stagnant wages.  In light of this, the run up in home prices over the last year or so does not match up with the economic fundamentals.   When people compare current prices to those at the peak of the bubble and claim current prices are affordable, I have to laugh a bit.  Those prices were imaginary, only possible with the exotic mortgages available at the time.  I wonder, with the artificially low rates of the last year if we are not just inflating another bubble?  With rates on the rise we will all certainly know in the next few months. 

My sincere hope is things settle down and we return to a normalized housing market.  I'd love the idea that I could buy a home, live in it, raise my kids there, have it appreciate at 3-5% per year and in 10 or 15 years sell it for a modest gain.  I guess we'll see. 

I feel exactly the same. 

[folsom44]

My 2 cents.....buy something you can very comfortably afford...pay it off and be loving life with no mortgage or rent payment. That is how people use to think and were very happy. There is a difference between what kind of house you need and what kind of house you would like to have. The people living in the house is what makes a happy home not the sq footage. If you buy something you plan on staying in for a looong time, housing prices don't matter.

[chris v]

My 2 cents.....buy something you can very comfortably afford...pay it off and be loving life with no mortgage or rent payment. That is how people use to think and were very happy. There is a difference between what kind of house you need and what kind of house you would like to have. The people living in the house is what makes a happy home not the sq footage. If you buy something you plan on staying in for a looong time, housing prices don't matter.

Also, people, live within your means. Choose a good solid mortgage. Chances are if you can't afford the house you want with a 30 year fixed you're going to loose it. Be smart, just because you have equity does not mean you need to spend it on toys. Buy toys with cash, save for it. People these days, that are my age just don't understand this and it really bothers me. Stop living like you're rich. You aren't.

[aztransplant]

My 2 cents.....buy something you can very comfortably afford...pay it off and be loving life with no mortgage or rent payment. That is how people use to think and were very happy. There is a difference between what kind of house you need and what kind of house you would like to have. The people living in the house is what makes a happy home not the sq footage. If you buy something you plan on staying in for a looong time, housing prices don't matter.

That's what we did. The feeling of not having any debt is priceless.

[Darth Lefty]

As long as the mortgage deduction and low interest rates are incentivizing home buying, people are going to do it in excess.  The combination makes the loan essentially free, if you qualify.

[Steve Heard]

Not sure what you are using for a rate or if you are including PMI, but ran the same numbers at 4.5%(the going rate) and got $1646.  According to the Zillow mortgage calculator $239k with a 3.5% down gives you a P/I of $1167, estimated tax $224, insurance $67 and PMI of $188.  I understand this doesn't take the tax advantage into consideration, but purely on a month to month basis renting is cheaper.  This is exactly what I've found in the Folsom market as well.  It seems the going rental rate for a nicer 4 bed 2 bath 2000+ square foot home in Folsom is in the $2200-$2400 range.  If you want to buy a similar house, most I've seen with the same stats run in the $450-475k range.  Assuming you had enough down payment to get to the FHA loan limit of $417k, at 4.5% interest, the monthy payment (with impounds) is around $2900.

 

I would completely agree that not long ago buying was MUCH cheaper than renting.  After rapid appreciation over the last year and rates nearing 5%, that would not appear to be the case any longer...at least if you are doing a straight comparision on monthly rent vs monthly mortgage.

 

You are correct! I hate being wrong, but have to admit it when I am. 

 

I called a lender friend and told her of our discrepancy and she said the online calculator I was using failed to include PMI, so your number is indeed more accurate. 

 

What I do know is the housing market, and I know it very well, so I've got that going for me. :-)

 

As for the 2000 sq ft house, the actual numbers are a bit different than your assumption.

 

I ran a check for homes between 1900 and 2100 sq ft, sold within the past 6 months. The average was 2003 sq ft,  selling for $196 per square foot, or $392,500, not the $450K to $475K used in your example. There are exceptions, of course.  

 

Of the 91 homes in that size range sold over the past 6 month, 5 of them went for more than $450K.

 

If one is looking for a great community, you can't find one much better, IMO, than Folsom. If you're looking for a bargain home, you might have to go elsewhere. 

[rip]

When I'm looking at home to buy I normally set the minimum square footage at 2200 and 4 bedrooms, so I'm sure that is where we are getting our discrepancy.  I think if you ran those stats you'd probably get numbers closer to what I posted.

 

I am most certainly not looking for a "bargain home".  If I was, we'd be having this discussion on the Natoma's forum.  I totally agree with you on Folsom being a great community.  Like most very desirable areas it is indeed more expensive to buy in Folsom than other areas, and probably worth it. 

[Steve Heard]

When I'm looking at home to buy I normally set the minimum square footage at 2200 and 4 bedrooms, so I'm sure that is where we are getting our discrepancy.  I think if you ran those stats you'd probably get numbers closer to what I posted.

 

I am most certainly not looking for a "bargain home".  If I was, we'd be having this discussion on the Natoma's forum.  I totally agree with you on Folsom being a great community.  Like most very desirable areas it is indeed more expensive to buy in Folsom than other areas, and probably worth it. 

Yes, in that arena the average sale was 2247 sq ft at $183 per foot, selling for about $413K, and they sold, on average, in 13 days. 

 

Funny thing is, the average listing is at $207 per foot, and of they've now been on the market an average of 32 days! 

 

As for Natomas, yes, there are some relative bargains out that way. 

 

Right now I have a house listed in Belmont CA, 60 years old, 3 bed 1 bath, 1300 sq ft, could use some updating, across the street from a garage and a paint store and 4 doors from the main road chock full of auto repair and other services, and it's listed at $730K.

 

I also have a house in Natomas, 3 bed 2 baths, 1170 sq ft, 10 years old, quiet interior street, and it's listed at $240K!

[rip]

Yep, proving once again it's all about location when it comes to pricing.  When I accepted my job in the Sacramento area, I was also looking at San Diego.  Wow!  In that area, $500k buys an 1800 square foot 1970's ranch with the original harvest gold appliances and green shag carpeting.   I comparison, anything in the Sac area is a bargain.

 

The current time on the market you are showing verifies exactly what I'm seeing.  This spring any decent place was on and off the MLS in a week or less.  Now things are sitting longer, and I'm even seeing quite a few price reductions.  Two homes I looked at on a recent house hunting trip didn't sell at all and were pulled off the market and rented instead.  Inventory is limited and it is still clearly a sellers market, but I think that is changing quickly.  Not to beat a dead horse, but the slow down and the spike in interest rates was congruent.   

 

And Steve, thanks for the great conversation and all the relevant data.