An Ant Posted November 28, 2003 Report Share Posted November 28, 2003 I know real estate is in patabolic rise but I want to buy a house now since long awaited correction/crash is just waiting for me to sign on dotted line. My rent for 2 BR apt in central NJ is $1433. Most likely hitting 1500 in Mar 04. Buying a house will probably only add 3K to 7K per year in net spending (after tax break) but before insurance, maintenance etc. Now that I must, why not buy an expensive house (say 500K) since interest rates are low. If there is inflation, house prices will also rise. If there is deflation I can refinance (assuming bonds will rise pushing rates down). I can downpay 100K. So net difference in my spending (considering tax break) is only 4K/Year compared to 400K house. I also read that expensive houses will loose less in percentage compared to cheap ones when correction/crash happens. BTW, has anyone used Roger Arnold's mortgage products (particularly under 5% 30yr mortgage) What is your experience. TIA Link to comment Share on other sites More sharing options...
EasyAl Posted November 28, 2003 Report Share Posted November 28, 2003 A recent article of Economist here probably will answer some of your questions. Link to comment Share on other sites More sharing options...
T_Minus Posted November 28, 2003 Report Share Posted November 28, 2003 Oh, I don't think it's possible for you to buy real estate at the top. Unless of course you intend to make your purchase, via time machine, in July. Link to comment Share on other sites More sharing options...
threadbare Posted November 28, 2003 Report Share Posted November 28, 2003 Ant, Inflation isn't wage driven--it's interest rate driven, this time around, so housing HAS to correct down. It's a complete myth that we'll have an exact repeat of the '70's or early 80's, economy wise. People will have less money for housing when they are paying more for damned near everything else. Housing is the most credit and interest rate sensitive market out there. What happens if interest rates go up, in the event of a run away devaluation of the American dollar? This isn't just plausible, it's highly likely. Look at it this way--there will be deflation in some areas, and inflation in others. Remember when we were kids? I'm thinking the '60's here, I guess. Stuff shipped from overseas was expensive, but homes were quite affordable. It'll shake out something like that, is my guess. The upshot is this--Would you rather buy a home for 500,000 k at 6% interest, or the same house 2 or 3 years down the road at 300 to 350,000 devalued American bucks (and this is being generous) at say, pick a number, 10%. If you don't want to buy gold, try sheltering your money in foreign currencies to bank some gains, and ride out the current mania. By the way, housing was down 10%, across the board, in October, so the bubble may be slowly deflating right now. I'm not an economics wizard like many stoolies on this board, but like uh, you don't have to be a weatherman to know which way the wind's blowing!!! :wink2: Good luck, Man. Link to comment Share on other sites More sharing options...
ShitEatingGrinner Posted November 28, 2003 Report Share Posted November 28, 2003 In my current job, I hire many temps. The job is real estate related. The 5 buck an hour temps are talking about how smart it is to buy rental houses or any house for that matter--to flip or rent. It's the equivalent of the shoeshine boys as far as I'm concerned. Too bad, since I think I'll lose my job at some point in the next year or two, and it's pretty good money. Ah well, my book is almost finished. Perhaps it will get picked up by an agent, published, and sell 500 copies. I'm gonna be rich! Whoooohoooo. Link to comment Share on other sites More sharing options...
Hiding Bear Posted November 28, 2003 Report Share Posted November 28, 2003 Actually there is one reason to buy a home that is not usually mentioned -you may be getting too old not too buy your first home (assuming you want to mortgage most of the puchase price). If that applies to you, then I would look at today's market as being the result of bad demographics and hope for the best. Other than that, I don't see why you can not at least wait another year to see how a possible dollar crash/interest rate hike may work in your favor. Remember if interest rates and home values decline, you will only be able to refinance with a smaller mortgage than the original. Link to comment Share on other sites More sharing options...
Metamucil Posted November 28, 2003 Report Share Posted November 28, 2003 You will pray for your rental, if you try and dump the house in a real estate bear.....definitely coming soon. However, there is something to be said for trading low-risk flexibility for a high-risk potential money sink......I'm just not sure what it is This is a great country!: you can get a McMansion for near-zero down, or else a significant discount on rent (via legal tax credits). Place your bets........... Link to comment Share on other sites More sharing options...
GTNWORSE Posted November 28, 2003 Report Share Posted November 28, 2003 For nearly 3 years running I have heard all of the reasons why housing just must crash. Thousands of people have acted by selling their homes to rent, while they wait for the crash so they can buy back in at perhaps 30% less. If you sold your townhouse here in Santa Monica 3 years ago at $425,000, which is what mine appraised for at that time, you could re-purchase the same home for $619,000, what I backed out of escrow for about 2 weeks ago. I don't suspect those folks consider themselves genius's right now. But say you do get lucky, really lucky, and time the market to catch the top. You need to rent a home that you feel comfortable in, like for like in my situation, which was going to cost @2,500 per month. Great, now how long does it take for the market to correct to where your comfortable buying back in? 2 years?, 5 years?, Lets say, for the sake of argument, it takes 5 years to bottom out. Lets also say it drops 30%. My $619,000 home is now worth $434,000 WOW I'm up $185,000. COOL Not so fast. I've spent the last 5 years paying rent at $2,500, no raises factored in, total $150,000. I've lost my tax write off completely, about $8,000 net each year, total $40,000. So I have lived in someone else's home, made no personal changes to it (nested) since it isn't mine, perhaps had to deal with problems that were fixed slowly, and spent $190,000. BUMMER Plus, I get to repurchase with rates at, say, 8.00%, adding an initial increase of about $3,000 yearly to my debt service. And IF the market went up another 10% next year, it's an election year and money is gonna be dropped by helicopter, and then fell by 30%......WELL YOU GET THE PICTURE. Be well Link to comment Share on other sites More sharing options...
An Ant Posted November 28, 2003 Author Report Share Posted November 28, 2003 I have been holding back for last year or so just waiting for this correction. I have been ridiculed by just about everyone I know. (Because they too waited for market to correct and prices went up after their purchase) Everyone agrees to RE prices being crazy but they buy homes anyway. I'm not doing this for peer pressure. As I said, by paying down 100K I will be adding only 3K-7K per year compared to what I would pay as rent (of course I did not include insurance and upkeep of the house but me and family will get to enjoy bigger house) I'll be 40 next year. I think I cannot wait for much longer. Like GTN said, what if prices went up another 10 % before correcting? My only dilemma is whether to buy a 400K house or 500K house. If interest rates go up (either economy improving, inflation, dollar tank) then wouldn't RE prices also go up? OTOH if rates go down, current cycle will only accelerate. No? Link to comment Share on other sites More sharing options...
Takachi Posted November 28, 2003 Report Share Posted November 28, 2003 so hedge your bet both ways and put down the least amount possible. If the crash everyone expects here happens, you get to walk away (just like your neighbors will). If not, you are appropriately leveraged. The absolute worst thing to do in this environment is put down a big down payment. Link to comment Share on other sites More sharing options...
FauxCaster Posted November 28, 2003 Report Share Posted November 28, 2003 I'll be 40 next year. I think I cannot wait for much longer.Like GTN said, what if prices went up another 10 % before correcting? I know of three historic real bubbles (florida, texas, calif), when they crashed, prices fell over 50%, it took over 10-years for prices to recover. Many S&L and other investment vehicles vanished along with the uninsured portions of peoples savings. It sure seems to me we are in the same environment. 10+ years later, in Texas & Florida there were still empty subdivisions of cracked pavement where no houses were ever built but steets were laid. Can you live with being underwater for 10-years? A friend of mine's house in Irving, Califonia was underwater for 10-years. He was happy to get rid of it last year at still less than break even. Yep, despite the hype, there are still houses underwater from the first SoCal bubble 10-years ago. Link to comment Share on other sites More sharing options...
An Ant Posted November 28, 2003 Author Report Share Posted November 28, 2003 so hedge your bet both ways and put down the least amount possible. If the crash everyone expects here happens, you get to walk away (just like your neighbors will). If not, you are appropriately leveraged. The absolute worst thing to do in this environment is put down a big down payment. The reason I'm considering putting down 20% is to avoid PMI and reduce my monthly payment. Don't want to loose anymore in the market. Bank will pay peanuts. Gold seems to be driven by dollar drop against foreign currencies. (Does anyone have chart of gold in euro, yen etc.?) BTW, does anyone have even secondhand knowledge of Roger Arnold's under 5% mortgage. Link to comment Share on other sites More sharing options...
An Ant Posted November 28, 2003 Author Report Share Posted November 28, 2003 One way to hedge is buy the house and short $HGX Link to comment Share on other sites More sharing options...
The brown one Posted November 28, 2003 Report Share Posted November 28, 2003 Good time to sell "The average investor has not grasped the concept that most assets are financial assets. However, one man?s financial assets are another man?s financial liabilities. In the US economy, the mountain of financial liability is so big it can stand in the way of economic growth. The only way to melt down the mountain of debt into a hill that can be climbed is to devalue and depreciate it, effectively inflating it away. For the holders of financial assets, the outlook is clear: Sell before Foreign Central Banks stop buying!" By Richard Benson Intressin' piece maybe not entirely unrelated to RE. Ant: I'll post a Gold:Euro chart next.If you bought gold in euro in the last 12 months,you've probably made zip! Link to comment Share on other sites More sharing options...
mksloth Posted November 29, 2003 Report Share Posted November 29, 2003 Anant(h) and others, wallstreetbear.com has a discussion on, get this, simple interest mortgage loans. It would be interesting to hear from our resident mortgage financiers about this new-fangled product. My limited understanding is that the interest is not compounded and typically is structured as an interest-only loan, but the interest is recalculated every month. So, when coupled with a no-prepayment penalty clause, this seems like it might be a smart idea. Link to comment Share on other sites More sharing options...
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