This page has been archived and commenting is disabled.
Should You Buy A House?
Submitted by Ramsey Su via Acting-Man.com,
Why Buy a House?
Examining the reasons to buy a house today may give us some idea where the housing market is heading in the future.
There are three reasons to buy a house:
Reason 1 – Utility
A house (any dwelling) is a shelter. It provides enjoyment, a home to raise one’s family, or just a place to watch that big screen TV. Utility is not quantifiable and it differs from household to household.
Reason 2 – Savings
If financed, a mortgage is a way of saving something every month until the mortgage is paid in full. If paid for, the savings come in the form of “owners’ equivalent rent”, which is what the census bureau uses to measure inflation in housing.
Reason 3 – Asset appreciation
At 5% appreciation per year, a $100k house today will be worth $412k in 30 years. Even a more modest 3% appreciation would result in better than a double.
Why Not to Buy a House
Based on the reasons above, it appears to be a slam dunk decision. Why would anyone not want to buy a house? There are three obstacles:
Obstacle 1 – Affordability
Housing, as a percentage of household income, is too expensive. A decade of ill-conceived government intervention and Federal Reserve accommodations prevented natural economic forces from driving house prices to equilibrium. As a result, not only is entry difficult, but many are struggling and are stuck in dire housing traps. Corelogic estimated that as of the 1st quarter of 2015, 10.2% of mortgages are still under water while 9.7 million households have less than 20% equity.
Obstacle 2 – High Risk
Say you are young couple that purchased a home two years ago, using minimal down financing. The wife is now pregnant and the husband has an excellent career opportunity in another city. The couple has insufficient savings and the house has not appreciated enough to facilitate a sale, which results in negative equity after selling expenses. The house can become a trap that diminishes a life time of income stream.
Obstacle 3 – “Dead zones”
Say you live in the middle of the country, in Kane County Illinois. For the privilege of living there, you pay 3% in property taxes. That is like adding 3% to a mortgage that never gets paid down. Your property would have to appreciate 3% per year just to break even. By the way, “appreciation” is unheard of in Kane County, good times or bad. There are many Kane Counties in the US. Real estate in these counties should be named something else and should not be co-mingled with other housing statistics. Employment is continuing to trend away from these areas. What is going to happen to real estate in these markets?
The Kane County court house: where real estate goes to vegetate
The factors listed above are nothing new. They provide some perspective as to where are are heading. Looking at each of the reasons and obstacles, they are all trending negatively.
The country is spending too much on housing, a luxury that is made possible by irresponsible Fed policies. 50% debt to income ratios are just insane and Ms. Yellen has the gall to call mortgage lending restrictive. Can we not see what is happening to Greece?
Mortgage backed securities held by the Federal Reserve System, a non-market central economic planning institution that is the chief instigator of house price inflation. Still growing, in spite of QE having officially ended – via Saint Louis Federal Reserve Research, click to enlarge.
Real estate is an investment that matures over time. The first few years are the toughest, until equity can be built up. With appreciation slowing, not to mention the possibility of depreciation, it is taking much longer to reach financial safety. The current base is weak, with too high a percentage of low equity and no equity ownership. The stress of a recession, or just a few years of a flat market, can impact the economy beyond expectations. The risks that might have been negligible once upon a time are much higher today. Many who purchased ten years ago are still living with the consequences of that ill-timed decision today.
By stepping back and looking at the big picture, we can see that real estate should be correcting and trending down. The reasons why our grandparents bought their homes have changed. Government intervention cannot last forever. It will change from accommodation to devastation, when they finally run out of ideas.
Conclusion
In summary, my working life had its origins in real estate and I am not trying to bite the hand that fed me. However, the reality is that the circumstances that prevailed when I entered the market are non-existent today. I seriously doubt that I would chose real estate as a career, or as an investment avenue, if I were starting over. As for buying a house, I would consider it more of a luxury as opposed to an investment, and one has to be prepared for the possibility of it being a depreciating asset, especially if one decides to move.
»
- 87563 reads
- Printer-friendly version
- Send to friend
- advertisements -
I have a some special trained Rottweilers, they went to school, and are not nice doggies. A freind keeps on them on the grounds for me and one of my tenants is a Chinaman that owns a gun range for Olympic competitors in Kingston Jah, Never ever had but one problem and it was identified by the Chinamans bullet hole in his butt as he ran off. So I heard. lol
How is the crime in Jamaica? I've read too many stories of people being "disappeared" in Jamaica unless you live in a luxury hotel with security services.
NAh, Ochi is great but Island wide 1200-1500 homicides year for an island 160mi, mostly in slums, but still not great. They keep the riff raff out of the nicer places like everywhere. But if yer skerd, yes stay in to hotel.
You want to go to a place where they will eat you alive try Trinidad. 2 blocks in any direction from the International hotels and your lucky to get out alive.
... "Should You Buy A House?"
... wait for the bubble to collapse then buy ...
Neil McCauley: Don't let yourself get attached to anything you are not willing to walk out on in 30 seconds flat if you feel the heat around the corner.
One of my favorite movies.
A house may be a depreciating asset. But it holds more value than the value of renting, which goes to zero at the start of each month.
Come on down to Orange County California. 600,000 for a 1600 sq. ft. doll house that's 50 years old. Chinks buying 2000 sq. ft. new homes for a million dollars. No bubble here. Totally affordable.
5% appreciation over the long term is not realistic.
What complete Bullshit and Nonsense..
A house is a Hedge.
Consider buying Healdsburg in 1977.
Don't believe a word of this bullshit, Location ROCKS!
Ask Trump!
I just bought my first house at age 45, and I see only one reason to own: so I can do whatever the fuck I want without asking my landlord for permission. I might raise goats, chickens, rabbits, maybe plant something. Tear out walls, add new walls, change the floors, install a woodstove, it's MY house.
Of course my place is out in the country, so there are no condo fees or covenant restrictions.
Its their building code. Its their zoning laws. Its their environmental restrictions. And its their application and processing fees you will pay or its their fines and penalties you will recieve. So yeah, its your house... but don't think for a minute that you can do whatever the fuck you like.
Nice informative article.
Me and Mrs Fernald are moving to NH next week after selling the house here at Ground0 (Bremerton).
We are going to buy outright after we scope out NH for a bit.
I know most ZHs would agree buying a house is better than letting a bank hold onto it right?
So thanks for helping to educate me. I might be off these boards for a while.
Just to let people know there is still some hope in the USSA look up The Freestate Project. I don't want to hear any bitching about people living in Ohio or anything.
https://www.youtube.com/watch?v=wplUBFVsbtw
Alvin - NH is very beautiful and if you live up north very affordable. But I moved to Florida, much more business friendly. The politics in NH are very bad. Instead of an income tax they built a police state. The inside joke in NH is if you have a penis, you will be taxed. In 2011 the state went bankrupt. Before that happened though they wiretapped $7k out of my bank account as they retroactively changed the law on UI.
When I called the state when I got the bill for three former employees on UI I said I was coming up there with my attorney and all UI payments showing I had fulfilled my end of the social contract. They wiretapped the money that day.
I lived over the border in Maine. Much better politics, no police state. I am probably moving back in a town name Fryburg ME in a couple years. It is right next to the mountains of North Conway NH. You pay income taxes in Maine but no police state. Its worth it.
Thanks but "The politics in NH are very bad"
You are so full of shit.
Thanks for mentioning the town I am moving to, what are the fucking odds of that?
In fact fuck you troll.
"They wiretapped the money that day." lol
Near the end, just before SHTF, the Federal and state governments are going to be chopping funding for all manner of programs and entitlements and projects. The cities and counties are all facing huge in-funded mandates - and it will only get worse. A house will be taxed to pay for city and county employee pensions and health care, along with road maintenance, Medicaid, welfare, and lots more. This is happening now in cities like Chicago and Detroit and Baltimore. Open your wallet!
Damnit, you don't buy a house - you build a home.
I went off grid 40 years ago in the boonies of northern CA, bought 40 acres for 12K, and over the next five years, built my house as I could afford stuff. (Lived in my shop as the house was built.) We lived pretty low to the ground for over 10 years, but never went into debt cept for the credit card which got paid off every month, every time. Taxes are about $2100 year, on solar now 8 months a year plus.
But it was never an investment. It was home. And it is not for sale, and won't be as long as my daughter is alive, and she's only 30...
My home office I'm sittin' in right now - bought the computer and screens and printer, three file cabinets, and the chair I'm sitting in. All the rest - the computer desk, bookcases, shelving, printer table - I built. Built the building it is in as well. It is very satisfying to be surrounded by your own efforts of most of a lifetime. When I dropped out of a 'good job and promising future' in 1969, my friends all thought I was crazy. Now, the ones that are still alive, realized I took the right path - it is a lot harder for a young person to go forth, buy land, and build there own stuff now a days. But still doable.
Live in the city, work for the man, stay in debt more or less your whole life; or grab your life by the horns and live it your way, debt free.
Bravo , well said. A house is a HOME.
I also am totally debt free and did something similar. Bought a run down wreck in the forest on a corner lot for peanuts (here in the Netherlands). Spent 5 year renovating everything with very high quality materials. It was a pleasure to do it.
Did the projects as cash flow allowed.
In Germany most people go with construction loans. The bank only gives the money after each phase of construction progresses
It takes longer but they are not crackerbox homes. Lots of marble, teak and tiles. and now most people are buidling digital built in and all LED and even solar from the git go.
"I went off grid 40 years ago in the boonies of northern CA, bought 40 acres for 12K"
Where I'm at, floodplain costs 5x or more than what you paid.
For those who don't want to bother with upkeep & maintenance and don't really care about the space they sleep/live in, renting really makes sense over time. Being a homeowner myself, there are times, usually after another horrific encounter with some whackcase contractor, when I fondly remember the freedom of renting wherein all I had to do was call the management office and tell them I needed "whatever" and it became management's problem to deal with crappy tradesmen.
PS Never, ever, ever buy a home with HOAs or especially CCD fees. So many people have been forced to sell because they bought into communities which went belly up due to a lack of sales and now the homeowner's have a greater share of community maintenance fees than they would have had if the community were fully built out. Also, as for CCD fees, you can get royally screwed if 50% (in most cases, but sometimes it's just a "board" decision) of the community votes for upgrades to the country club facilities. Just a word of warning from the land of gated gilded ghettos (also known as South FL).
BTW The article picks on Kane County unnecesarily. Most people move there to stay. It is an easy train ride (though long) to the city, it is beautiful, the median income exceeds the norm in America, crime is low, schools are good, and you're right near Fermi but don't have to live in crappy DuPage county (ok, that would only be a plus for me).
Home prices like all assets driven up with cheap money... soon to end.
If hyperinflation comes I shall sell my mortgage hedge, silver, and pay off the house.
If deflation takes over I shall probably walk away from my house and take my silver with me.
With my luck there will be both inflation and deflation over the course of two years and will lose most of everything anyway.
Even if I keep my house the taxes may drive me out as cities will raise them skyhigh.
Good idea to have a cheap back up country house debt free in the woods in a place where services are low... well water, septic system.
Early 80's interest rates were raised to near 20% to curb inflation, if that happens again I shall be out of my house... if there is no work, no salary, millions shall join me.
And the shit that is coming hasn't even started yet....
Best course will be for governments to allow people to own their homes mortgage free as was the case at the fall of the Soviet Union - there if you had a place to live, it was yours.
Collapse the banks, all debts wiped.
gonna crash soon
if you don't rent a car every day, why should you rent a home every day? you people BUY cars but say not to Buy a home.
car leases are horible for most people, apartment leases are wonderful?
buy gold, buy a car but rent a home, yeah that makes sense
Own two rentals, in a few years I will kick out the tenants. My son will live in one, my daughter in the other. They get to start their adult lives RENT FREE. In home paid off by someone else who thought they were so smart financially. And don’t tell me about taxes and insurance so I “don’t really own it,” cause you all pay taxes and insurance on your cars right? So, you don’t really own them. Up keep on the house? You pay upkeep on your car, right? And also kids will be school loan free cause the rents help pay their school bills. So yeah, baby, keep renting. I like the extra cash.
I own a rental also. You are 100% correct in what you say. To the "smart" people who think there is some advantage to renting: Keep that opinion, I want your money!! The absolute ONLY advantage to renting is you can walk away. But even that is limited if you have a lease, which everyone does these days. As for the argument of "I don't have to do upkeep or pay taxes or insurance"...hey dummies, do you really think we property owners come out of pocket for that stuff? It is all figured into your rent, so yeah, you are paying it.
Meh, it all depends on the market. Rent increases generally trail property price increases in a credit bubble.
The only thing is this, and I will not assume you match this situation:
1. Kids move in: they ALL lose their jobs, cannot pay the Property Taxes, utilities, and their 4 kids (2 kids each) need to eat. THEY COME TO GRANDPA.
2. Kids move in, as in scenario one, but then we add that Grandpa and Grandma, due to contaminated Water on YOUR land, get sick, are hospitalized for 4 months due to liver failure. YOU ARE BROKE now, as Obamacare or Medicare Part B runs out, and you are fucked. They take all your money, the SYSTEM, and also come after you for back taxes and the Local County liens ALL of your homes for unpaid Property taxes.
THE KIDS are broke, Grandpa and Grandma are broke, you lose all of the houses, and you rent.
Renting is just paying someone elses mortgage for them. How do you think the ancient aristocracy maintained themsleves for hundreds of years, they owned the land on which others lived.
But this is a goldbug site hence lots of people saying BTFD instead
Remember that in many places around main cities you never own the house. Your local municipality/county owns it and leases it to you in the form of property taxes.
Generous public union pension plans are going to keep demanding more and more money because they put it in the state constitutions.
Anyone staying in states like Illinois, California and NJ are going to be financially sucked dry.
Each situation is so unique for an inidvidual that home ownership makes sense for some and no sense for others.
If bought/developed correctly with the correct financial gearing RE is a great asset no matter what.
Shelter is a very basic asset that everyone needs.
Asset appriciation is bullshit.
I've posted the calcs many times here before....
My parents lost 70% buying a house in 1964 rather than gold.
The price was 475 ozs of gold for the house, today is worth C$550,000. The house is worth C$380,000 not including 50 years of taxes, insurance, maintenance and improvements.
Gold beat it by a long shot.
Squid
Meanwhile the National Association of Realtors is shitting skittles and puking rainbows.
Home maintenance kills most any property appreciation
Buying a home in West, in this day and age, is a fool’s errand IMO.
You have “blow off” tops happening in RE in certain parts of the USA (NYC, SFO Bay area, etc), and the US stock markets are starting to fade. Not to mention China R. Estate and stock markets.
China? Greece? EU? Looks to me like the world economy is starting to have a seizure. What’s going to happen WHEN the markets dive? And…. It’s gone!
Why do you want to be stuck with an “asset” (liability) that needs regular maintenance, and sucks your cash via taxes and fees (HOA? – forgettaboutit).
No, looks like there is minimal upside and HUGE downside potential at this point.
All the trillions ended up on Wall Street, and Mom and Pop are struggling to keep up with inflation.
When we bailed on USA in late 2012 to Asia, our friends thought we were nuts. “USA always comes back,” is what many told us. We didn’t see it that way.
We feel better about where we are now (financially and physically). Everything is paid off, we live inexpensively, and we can weather the storm that is looming. Prepare!
You might also want to mention, owning property and a government with an unsatiable demand for taxes to feed itself. What's to stop them demanding home owners borrow against this years growth?
So your house goes up by 2% this year but you get an "increasing property value tax" of 2% to match.
That is as good as any bailin of deposits and the property can be used as collateral to borrow and pay this NEW tax also.
Your home just got bailed in!
Bought 5.7 acres with arable land (about 1.5 acres), woods and a stream for $14,000, paid $10k cash, seller took a $4k mortgage for two years at 5% (my terms). Paying the mortgage off in half the time is costing me $350 a month, but it will be done in a year.
Picked up a motorhome (Sportscoach III) for $500, paid another $300 to have it towed (engine torn up). The sucker was $78K when new in 1984. Has all the bells and whistles, plus some more like a convection oven, enclosed wine rack, cb radio, etc.
So, figure I'm doing pretty good. Taxes are $700 a year (New York - fuck you very much Guv Cuomo).
Going to build like a shed next year. For this winter, staying in a friends remodeled shed (600 sq. ft. - I did most of the remodeling) with shitter, shower, electric, wood stove) for $300 a month. Still not too bad.
By this time next year, I plan be completely debt free, have my own year-round residence, pay a little more in taxes (probably a lot more, but still less than $1500 a year), kick back and enjoy. Best part is I told the local utility company to pound sand when they told me it would cost at least $600 to hook up electric. Going solar at some point, but since May 1, I've lived without electricity for the most part, pay less than $25 a month for a cell phone (I rarely use it), and the free library is 5 miles away with unlimited free wi-fi, and they let you recharge your laptop or cell phone for nothing, and offer printing services for free as well (4 pages). Also, my friend likes having me around to cook and do chores, so I use her wi-fi as well, as I am doing right now.
Do not miss cable TV one bit. Enjoy listening to ball games on the radio while watching magnificent sunsets or reading.
No, home ownership isn't for everyone. It's just for everyone who has functioning grey matter between the ears. Renting is a bottomless pit into which you throw your money every month. Sadly, home prices are absurd. The only way for prices to come down are for people to refuse to pay $235,000, for instance, for a 3BR shack, which, just 50 years ago, probably went for $35K.
When people get their shit together and realize just how badly they're being robbed by banks and government, prices will adjust and life will be better.
And that will happen exactly NEVER.
Ditto your cable TV comment. I was paying over $100 bucks a month to comcast and realized one day that there are only a few programs on a few channels that I watched anyway, and they weren't that great. Was glad to cancel.
I have SAT dish with 3 LNB's (Astra 1 , Astra 2 and Hotbird) getting me 3000 channels of mainly CRAP but its all FREE to air.. I got it mainly for some BBC channels for dramas (NOT NEWS and for Russia Today, perhaps the best and most real news you can find anywhere. plus hundreds of all genres or radio stations in CD quality sound.
For 350 US dollars you can get 200 watt solar system minus storage . enough for basics in your home. Use mine to augment the grid making my electric bill cheap.
If you play your cards right ,, on your place you can put in both solar and wind and pay nothing.
Lots of YouTubes how to do it.
>> Bought 5.7 acres
Good move. The RV on land is a great option. We traveled in our 30' fifth wheel and I could have easily continued to live in it after traveling. Put 520 watts of solar, at 12v, on it with four Trojan T105, plus two 40# propane tanks and 100 gallons of water. We primarily stayed in dry camping areas and only needed to rewater, de-water, about once a week. Without the axe I could have made it three times as long. If I'm ever single again I'd most likely find some acreage with a barn and put an older high quality RV on the property. A quality RV is very much like living on a huge quality yacht. Pretty good living on the cheap. It only gets expensive if you want to be mobile and stay in upscale RV parks. Good luck to you.
I put a buy order order in yesterday. Therefore the housung crash starts Monday
Figures.
Main reason for buying a house should be to live in it.
There are so many variables to buying a home that it becomes almost a hit and miss exercise. You could have been kucky and bought in Sydney in 2000 and now be sitting in something worth three times as much or you could have been unlucky enough to buy in Fukushima.
I think people should invest the minimum possible in housing and simply save excess funds in silver and gold to gve themselves the maximum ability to move around and avoid disasters.
Consider this. From age 20 to age 65 there are 45 years and if you live another 15 years you should save one third of your earnings to meet that retirement.
Saving less because of interest or or other income on retirement funds s bogus due to tax and inflation.
Americans buy huge homes that are not designed for the way people want/need to live in big homes--communally. They are oversized "single family" homes that will not hold value.
Big wide people that waddle need large homes.
They have the land for it. The average ghetto dwelling in south central LA has more floor space than a million pound apartment in London or Tokyo. Its due to scarcity of land. Doesnt mean you would want to move there though !!
I rented for a couple years. The landlord died. I didn't want to move into another rental. I put 6% down on a mountain retreat that has a 4% interest rate. Taxes are very low. Did I pay too much...I think I paid way too much. However, I believe the Dollar is dying. In 10 years, my house and a ham sandwich will have the same price. No doubt I won't be able to afford either one.
If you intend to live there for at least 10 years and the only other alternative is renting then yes you should buy a house, providing you can afford a decent sized deposit and a preferably long term fixed rate repayment mortgage and you aren't buying in a slum area or a country thats in a housing bubble like UK and Australia.
Anything else is a gamble like anything else and dependant on future house price fluctuation, rental market fluctuation and rate rises.
I would still choose property over cash, stocks and shares, bonds or pm's if you have a large amount of capital needing to be invested, just leave yourself a reserve fund as they do require financial investment to maintain and make sure the area is at least somewhat desirable and likely to remain so.
If you can satisfy these criteria long term a well maintained property will always be a worthwhile investment that increases in value over a longer trend. Just look at how much land and property the ultra rich accumulate for investment purposes and how rental yields are increasing due to demand outstripping current supply. Unlike the other investment vehicles I mentioned above the supply of land in the world isn't about to increase any time soon, nor does there appear to be a great appetite or ability for major housebuilding in the developed world at least.
Addendum needed as it seems from what others are saying there is major problem with property taxes in the US, cant vouch for that as in the UK but if you are buying in US this is obviously a huge factor.
Makes sense I guess, governments fear downward corrections in house prices more than anything as it gets them kicked out of power pronto. Therefore the only way forward for a foundering economy for them may be to boost house prices and then force people to release the increased value in their homes to pay for property taxes and inflation prone food and goods that they cant afford from their stagnant wages. They can keep things rolling a bit longer that way I guess.
More millionaires have been made with property and than anything else.
As Will Rogers quipped ''Land because they don't make it any more''
Most important thing is location, location, location.
To counter that, I'll bet real estate has made more 'poor people' than millionaires....'buy' a significant margin...
Also, wasn't it the Dutch that reclaimed land??
Just messin' with ya.........;>)
A house is a great idea, but at 0% interest rates and 95%+ leverage, housing is way overpriced.
Also, you better be damn sure :
- The market continues to appreciate
- You can pay off the mortgage
- Interest rates don't rise
- You don't lose your job
Did anyone notice this article made no mention of leverage? In fact, as I write this comment, only two comments mention leverage ... and not in context of the actual business proposition of buying a house.
With zero inflation, leverage means nothing. But we have a Medium of Exchange (MOE) manager who thinks inflation should be 2% (and has delivered 4% for her 100 years of improper management).
In the olden days, you went to a bank to borrow money to buy a house. The banks required at least 25% down (i.e. maximum of 4x leverage to the buyer). Obviously you had to save a long time to come up with that 25% and buying wasn't an option as a result. Real estate people weren't too happy with this suppression of their marketplace.
In time, savings and loan companies and government guaranteed loans came into existence (by legislation) and granted the buyers typically 20x leverage and in some deceptively presented cases (e.g. no-money-down) the buyer enjoyed infinite leverage.
Since we have 4% inflation, 20x leverage means the skin the buyer has in the game enjoys an 80% return. Take a $100,000 house. It inflates to $104,000 the first year (making the naive buyer think its worth $4,000 more than he paid for it). His skin in the game is 5% down or $5,000. Thus, "he" has realized a $4,000 gain on a $5,000 investment ... 80% annual return. Is it a surprise he doesn't care that his loan requires him to insure the loan and the property. Is it a surprise he doesn't care about paying points and origination fees. Is it a surprise he doesn't care that he pays a 30% load for taxes. Is it a surprise he doesn't care that he actually buys the house three times over his 360 payment trading promise?
Now take the renter: He pays the same loads as the buyer. But he doesn't get "any" appreciation ... even on his deposit. All the goodies go to his landlord ... including things like depreciation to reduce his income tax.
The only reason not to buy is because you have to relocate so often you can't absorb the 6%+ transaction cost of selling and buying a replacement.
Another reason not to buy would be low (or negative) "real" inflation ... not the bogus numbers the government reports. This happens frequently. For example, the mine plays out in a mining town and shuts down. Miners who bought their houses are in deep peanut butter.
Down here in Oztralia we don't have that problem, it's never a bad time to buy realestate bcos we have a constant flood of people and it's been going up 15% a year for the past 100 years.
That means a little 2 bed room crap hole 5ft wide now costs $1 MILLION.
Read it for yourself: http://www.dailytelegraph.com.au/realestate/news/the-narrowest-house-on-...
There's no bubble, it's just the way we roll down here... and the government sole mandate is to keep prices rising.
Btw we don't even have inflation either, bcos anything that goes up gets removed from the stats.