How long will it take for people to trust in the reliability of housing as "the most important investment you'll ever make" again?
Bonus question - how long will it take for people to trust REALTORS again? (he he he)
June 25, 2008
HousingPANIC Stupid Question of the Day
Subscribe to:
Post Comments (Atom)
31 comments:
You mean it's not? .... SUZANNE!
Keith,
It always was the most "important" investment and its the fact that everyone lost sight of its importance that lead to the housing debacle. I think what you really mean to ask is "When will people be able to trust the housing market again?" That day will come when houses are purchased to be homes at a level were its cheaper to own than to rent and prices have reverted to the mean and they are affordable relative to incomes.
Thanks for the blog
Joe
I always found it laughable that a home was "the best investment you could ever make." An asset that does not typically generate positive cash-flow, and only appreciates at 1% over the rate of inflation, is somehow a great investment? Better than stocks (avg. 10% annual returns) or commercial real estate (avg. 10% returns + appreciation + tax incentives)? What a massive con! And how perverse that the "American Dream" somehow devolved from the desire to become wealthy to the desire to spend your entire life paying off a white picket fence. It's a notion that almost HAD to have been packaged, promoted, and sold by the REIC.
In reality, it seems that housing, along with other bullshit American staples like saving for a college education and the 401k, is a scam designed to divest the middle class of their income, making them lifelong servants of employers and lending institutions. Millions of naive Americans are waking up to this fact as they slip underwater on mortgages and student loans that will take them the rest of their lives to repay.
Yes, a house can sometimes be a good investment. For instance, when you can buy five of them at pennies on the dollar, repair them, and install tenants that will pay your salary for the rest of your life. But any American struggling to stay current on his home mortgage and student loans has already bought into a lifetime of serfdom.
Trust returns when Greg Swann is back to selling used cars
Good point, Aaron. I too think the idea that owning a house is the American Dream was foisted on people to prevent them from investing in something more sensible.
I still don't get it why housing is an investment. You get a mortgage that you have to pay off 30 years, pay taxes, make repairs. The only way this is some kind of investment is if you are able to sell it or rent it out and hope there would be some returns. I don't see HELL (home equity lines and loans) as an investment, only as a way to financial ruin.
Housing has never been a great investment overall. No realtor ever tells you about the carrying costs! 1% for maintenance, 1% for insurance, and around 1% for property tax (might be generous here). That's 3% of the house's assessed value per year that you pay just to carry the thing. DOn't forget the interest you pay on the mortgage unless you paid cash for the property. Also, if you remodel, subtract that from your selling price. I'll bet you find that most of your flippers didn't make good money like the media says. The only case where they probably did was buying in a hot market like Vegas or Phoenix and sinking $5k or something small into the house and selling it a month later with a markup of 50K or some obscene amount.
This is a nation of 1K millionaires. A McDonalds worker who makes $7 an hour gets a home loan for $400K. YOur typical stuck up Yuppie in a Jeep Liberty packing a Blackberry gets a home loan for $1 million. Both buy houses that aren't worth their 1990 prices (no typo there). Does anyone on this site really think that business as usual will ever return to the housing market, or this mess you Americans try to pass as an economy?
I think it's funny what some people say on this site. You claim to be libertarians but you worry about the dollar and the economy and all this other BS. I'm somewhat of a lib and I don't think it's worth your time worrying about the dollar or the Mexicans or Congress. Obviously they don't care what the public thinks. Why waste your time with them? Everyone knows that the REIC is as corrupt and self-serving as all of your politicians are. Life is too short - listen to a real libertarian and stop fretting over all of this.
it is the best investment. what other investment out there is guaranteed by the gubermint?
{sarcasm on} Housing is a great investment!
My driveway is deteriorating and will cost around $8000 to replace.
My deck is close to end of life and will need replaced for $6000-7000
Two windows downstairs need replaced $2000 (since the others are nice peachtree windows)
All the windows upstairs need replaced ($3000) with cheaper vinyl.
I have a couple trees that are in need of trimming so that'll be $2000.
I've spent around $2000 on yard equipment, tools, grass seed, fertilizers, garderning sh!t, time, etc etc etc.
I used to have 70 hours of free time a week while renting. I'm down to maybe 20 hours weekly. Needless to say, I'm not golfing much and spending hours and hours weeekly to keep the yard, gardens, bushes, vegetable garden, etc in shape.
On the bright side.....
I'm gonne be paying someone $800 a month regardless, might as well throw it into a house. Also, having a roof (Oh yea, that needs replaced too for $5000) over my head is still much better that my life as a renter living below my means.
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
Oddly enough Keith (and my fellow HPers), the gal I bought the house from is actually now living with me. I'M NOT MAKING THIS UP.
So my cost of living is roughly the same as when I was living in "the hood".
CG
I bought a house in 2002 for $300,000 with $15,000 down. I sold it in early 2007 for $521,000. $221,00 **TAX FREE* profit on an investment of $15,000.
Indeed housing is an awful investment vehicle. I should have rented all along and invested my $15,000 in 4% CDs. Right?
And for those of you who chime in with 'yeah but you paid interest and taxes and repairs, so you really lost money'...save it. The interest I paid was what I would have paid to rent a similar house, And unlike rent, it was tax deductible. Taxes were in total about $15,000, of which I got $5000 back in tax deductions. And it was a new house so my repairs were almost non-existent, maybe $2000 in total on fixing a couple of minor things like I had to replace a faucet once and the garage door opener was replaced.
Still even taking all that out I still earned about $200K tax free on a $15K investment in 4.5 years. Try beating that kind of investment Anyone who sat out the housing bubble and rented instead was a financial idiot. Plain and simple.
So what's wrong with taking out a student loan? Not everybody's parents can afford to send their kid to college.
Also, some people with a high school diploma suddenly 'wake up' in their 20's working at a sh!t job and decide to get themselves a college education.
For many, the only way to get through college is via student loans. And guess what? if you borrow money then you are obligated to pay it back!
My student loans, which took ten years to pay off, were the BEST INVESTMENT that I ever made in my life.
-Mammoth
Mammoth said...
So what's wrong with taking out a student loan? Not everybody's parents can afford to send their kid to college.
_________________________________
I would not want my kids starting life $30K in the hole for college...lifes too short & cash still does not grow on trees.
If your parents cannot pay the cost...maybe its time to look at community college or some other more economical form of education but to get 10 years in the hole right out of gate is a poor choice.
As far as housing as a investment...A home should be considered a place to LIVE. If it so happens that life throws you a curve and you make $$$ when you sell its a bonus but not a way of making a living. The vulture realtors will be there trying to get a cut of your hard earned cash so guard your wallet.
Realtors are the next pay phone...who needs them when there is a cleaner,safer & cheaper option?
10 long years
Not until the shakeout wrings out the excess.
2012 or so.
Realtors? Never.
Brokers? Never.
Mortgage Pros? Never.
-Lee.
That old school view hasn't changed in New York or CT, people still think buy the small dip, if any dip, as super high end keeps going up, im guessing they will all learn the hard way, no sure thing anymore
Anon @ June 25, 2008 3:24 PM:
"Still even taking all that out I still earned about $200K tax free on a $15K investment in 4.5 years. Try beating that kind of investment. Anyone who sat out the housing bubble and rented instead was a financial idiot. Plain and simple."
So it is justified to contribute to a financial bubble, just as long as you get yours? The profit you got is fictitious hot money that the taxpayer will have to pay as the buyer of your home goes under.
This attitude of 'screw him before he screws you' is from low-trust cultures that are changing the business culture of this country away from the more conservative mid-20th business values that we used to have.
This attitude will only accelerate the destruction of our country. You cannot have a cohesive culture when people are racing to screw each other over before the bubble bursts.
Way to contribute to your own greed at the expense of the destruction of the US, jerk.
Still even taking all that out I still earned about $200K tax free on a $15K investment in 4.5 years. Try beating that kind of investment Anyone who sat out the housing bubble and rented instead was a financial idiot.
OK, all right, you bought at the right time and sold at the right time, so you profited from the bubble. I estimated the annual appreciation to be almost 12%, which is indeed a bubble.
In the absence of a bubble, housing is not a profitable investment wouldn't you agree?
Anon who made $200k flipping a house: good for you. Most were not so lucky. You properly timed the market and made a killing. But that's not what the REIC hypes when they promote housing as "the most important investment you can make." They promote long-term, live-in investment without regard to market conditions or affordability. The kind that trapped millions of suckers in 2003-2006. You didn't invest in a house, you traded a house. Big difference. And you won't make that kind of money "investing" in a house again in your lifetime.
Yes, renting is generally for suckers. Anyone who goes their whole life without building a portfolio of real estate or other assets has done a very poor job indeed. But so did Joe and Jane Six-Pack who spent their entire lives paying off a mortgage on a home they could barely afford. Instead of spending $500k on a house, why not buy a small commercial property that will give you a $50k annual return plus all the appreciation and tax incentives of a home? Then you can use the income to rent and eventually buy a home when the time is right.
Mammoth: It's nice that you feel good about your student loans. For some people they make sense. But consider what you could have done with the time and money you spent on college. Most American kids will spend four years and $100k getting an education, and many will spend more than that. Most will graduate into $50k jobs. Unless they intend to go on to professional school and become doctors and lawyers, was it worth it? What else could they have done with $100k and four years time? Start and grow business? Flip a house for profit, as you did? Invest in gold or agriculture or alternative energy and perhaps double their money? The fact is that this country spends far too much time and money "investing" in the education of its profligate youth, and as a result America cannot afford to produce anything anymore. So we outsource all our jobs to China and India (where they're too smart to waste their time and money on college) and we run a gigantic trade deficit. All because Johnny Six-Pack decided that he was too good for factory work and just had to get a degree in Comparative Literature.
That's not sustainable, people. The days of our fabled "service economy" and expensive college educations for everyone are coming to a close. Americans are going to have to get used to the idea that college and homeownership are not for everyone.
House = biggest EXPENSE you will ever have.
aaron:
The "American Dream" equating to homeownership WAS invented by the REIC. That is a known fact.
Don't underestimate landlording, though. You think you're a servant working a real job? It isn't like you can walk away at age 65 from your responsibility to your tenants.
I agree with Mammoth on the student loan issue.
I think spending money on an education is one exception to taking on debt. (Unless the course is one of Casey's scaminars.)
A house/property should be a looked at as a place to live. Not an investment.
Anyone who made money selling their home got lucky. Don't act like you were some financial genius, because you aren't. It was just dumb luck. Life is like that.
But whatever. Who gives a shit. The way things are going that 200K you have in your pocket isn't going to mean jack squat when the shit hits the fan.
Got ammo?
-FutureShock-
I love student loans. Got $30k @ 2.4% and used it all to buy more property overseas.
Oh, and thank you El Presidente Jorge for the China Stimulus check received yesterday because I'll spend that in my next trip overseas, since it's a sh!tload of money there. Sorry, no spending in the US economy.:(
I love all this Obama socialism you guys have in the US. Can't wait for more Democratic party's socialist opportunities to make money.
Have I told you that I sold at bubble's peak, got $200k tax free to buy properties overseas, and now rent a luxury condo for peanuts in a building that stays 3/4 empty for most of the year? The wannabes from the Northeast, who have second homes in that building, subsidize my 24/7 on A/C, gym, basic cable TV, pool, etc.
And get this, can you believe that the bailout plan will give me (fiancee) $8,000 credit to buy a property that will be in reality subsidized by taxpayers and renters under the table?
Not only that, my fiance also collects food stamps to subsidize our food, since we're not married. Funny when I drop her off in my BMW SUV to buy food using stamps.
Imagine what Obama will bring in socialist program opportunities to make even more money.
God I love this country.
I bought a house in 2002 for $300,000 with $15,000 down. I sold it in early 2007 for $521,000. $221,00 **TAX FREE* profit on an investment of $15,000.
That's because this bubble was an anomaly. Anyone who bought in 2007 surely will not make a decent profit by selling in 2012. Are you saying we should all buy houses now and expect a giant profit in 5 years?
I think the point of HP is to show that now is not a good time to buy (and hasn't been since 2005) and that there was indeed a giant bubble in house prices. Saying that we should have bought in 2002 is a moot point anyway since HP didn't start until 2005.
"I would not want my kids starting life $30K in the hole for college...lifes too short & cash still does not grow on trees.
If your parents cannot pay the cost...maybe its time to look at community college or some other more economical form of education but to get 10 years in the hole right out of gate is a poor choice."
Well, this is where having discretion makes sense. If one's attempting a professional school (i.e. Pharmacy) then loans will probably have to be the way, since it's the getaway for gaining entrance into the field. On the other shoe, why does everyone have to attend a four year traditional college as if the tuitions were at 1975 levels (i.e. $3K {or $12K today} per annum at a private college)? Really, if one's kids can get 1600s and near full merit scholarships then by all means, go for it. Otherwise, part-time it with a distance program since many office jobs don't really require the education, just the final B.A. diploma for the HR dept's record keeping.
[quote]I bought a house in 2002 for $300,000 with $15,000 down. I sold it in early 2007 for $521,000. $221,00 **TAX FREE* profit on an investment of $15,000.
Indeed housing is an awful investment vehicle. I should have rented all along and invested my $15,000 in 4% CDs. Right?[quote]
So, you sold your house for $521000 and now you are renting, right? Probably not. Probably you bough another one for $600000 and you'll be able to sell it in a couple of years for $350000.
If you are renting, good for you.
If you purchased another one, you are an idiot. :)
That old school view hasn't changed in New York or CT, people still think buy the small dip, if any dip, as super high end keeps going up, im guessing they will all learn the hard way, no sure thing anymore
Right, denial is very strong in NY and CT, yet there are severe declines in values in the middle-class areas of Long Island. It would take more than a couple of years till the mindset of the sheeple changes.
The guy that made the killing definitely had good timing and was lucky to sell his house for such a profit in 2007. But lets look at the average guy that puts $15K down on a $300K house, put $2K into it and sold for $521K with ~3K/year in taxes and a 30% tax break on that. He still had to pay the other $10,500 in taxes because he only gets ~30% break on the total tax bill over 5 years, he still had to pay homeowners insurance, he still had to pay ~$1,530/month if he had a 5% 30yr fixed rate - because there's no way he could have known that he WOULD be able to sell after 5 years so he could have gotten really screwed with an ARM. So after taxes with the tax credit, and after his $2K repairs and after his $15k deposit and after insurance est at 1%/year - he ends up with ~$178K - still not too bad - but at this point he's also paid ~92K in mortgage payments over 60 months which we as renters also paid to have a place to live. He's also spent time maintaining the lawn etc even if he did it himself while renters don't have to commit any of their free time to maintenance of any kind. I suppose in 2007 he might have been able to sell in a down market on his own - but in this tight market - many average people are having to resort to using realtors at 6% - that's $31,260 on a $521K house. So his adjusted real profit after all expenses is actually ~$55K - oh I forgot closing costs which for the seller is usually ~$10K - but we won't count that since I also didn't account for a tax deduction for his mortgage interest. If I as a renter paid $1,300/month for my 3 bedroom 1/2 house - then I saved $730/month over his piti payment of ~$2,030 - plus I only paid for electric and cable - my landlord shoveled my snow, mowed my lawn, paid my heat and hot water and paid the water bill. As a result - I've actually saved ~$58K more than I would have had I bought his house in 2002 plus whatever interest I managed to earn on my original $15K that I didn't sink into a house. So it's not $15K that I made interest on - it's the $58K + $15K that I saved over him. I definitely would have bought a house in 2002 if there had been one in my area for only $300K - prices were already well above that in 2001 where I live. But because it has been cheaper to rent all of these years, that's what I've been doing. And yes, I missed the boat because I had to sell my own house in 1999 due to my spouse's health problems - but all in all - it's always a gamble - it's just as likely that Mr. $221K profit had a catastrophic illness, a job loss or was not able to sell as he was lucky enough to do. But I've actually saved quite a bit more over these last few years - my spouse - who's better now - and I have each put 10% into our 401Ks with company match up to 6% plus we have also managed to sock away another $265K because we have been living comfortably under our means for the last 9 years.
Aaron said…
“What else could they have done with $100k and four years time?”
- If I hadn’t gone back to school, after four more years I would have still been working as a printer – working nights & weekends while breathing ink mist and paper dust and watching my colleagues dropping like flies in their late 50’s.
-------------------------------
“All because Johnny Six-Pack decided that he was too good for factory work and just had to get a degree in Comparative Literature.”
- There is no dishonor in factory work. I work as a Manufacturing Engineer, and many factory workers here are quite brilliant and would’ve probably made better grades than me if they had gone to college. The people who build the product deserve respect!
-------------------------------
6% said…
“...maybe its time to look at community college or some other more economical form of education but to get 10 years in the hole right out of gate is a poor choice.”
- Going to a community college and then transferring to a university for the final two years saved me a bucketful of cash – my student loan debt was ‘only’ ~$25,000. And that amount of money - plus the countless hours which I spent both in the classroom and studying, plus the jobs that I worked while a student – were indeed the best investment that I have ever made.
The poor choice would’ve been to do the easy thing and just stay put in the same crappy job, then wake up later in life and regret never having had the guts to make a change in my life.
-Mammoth
"Still even taking all that out I still earned about $200K tax free on a $15K investment in 4.5 years. Try beating that kind of investment"
First of all, your capital cost is not $15k . . . because you also have carry cost: the $10k in taxes, and the excessive amount of house that you may not have needed if renting. BTW, by 2002, monthly payments on even interest-only ARM's were already higher than the rent on the same house. The switch-over took place around 1998-1999.
Secondly, hind sight is 20/20, especially when we are talking about bubbles. I have a couple strategies that have you beat:
(1) put your $15k as the 6% down payment on gold futures in 2002, at around $300/ozt. By late 2007, with gold price at $900, you would have made . . . $735,000! oil futures went up about 4x, which means $985,000 profit! The degree of leverage would be about the same as your $15k down on a $300k house (or 5%).
(2) I never gambled like that with my personal porfolio; last time I bought a house, it was 25% down. In any case, I did buy MSFT in 1989 and CSCO in 1992, selling in 2000 for 20x-30x the price I initially bought (despite being a little late in unloading). Those were garden variety stock purchases without any leveraged risk.
(3) So, did you rent or buy another house after selling? If you rolled your $200k profit into another house, you are just giving it all back.
ps.
an obvious point I neglected to mention in previous post: anyone following the prior stock performance to buy MSFT and CSCO in 2000 would have been disasterous. Likewise with anyone thinking of buying real estate based on 2002-2007 performance.
Mammaoth,
Agree with you on education as principle. However, just like stock markets usually give good long term returns, and owning one's home usually give good long term returns . . . every wonder what the "long term" meant for someone who got into either in 1928-29? It would be 35 years before they broke even, assuming they were still alive. IMHO, education, both the cost perspective and quality of product perspective (what they teach for a general purpose BA), is having all its potentially fully priced in, 'cuz even the shoe-shine boys are repeating the mantras of the importance of education. It's sickening how much student loans and how little skills a typical job applicant with a BA has nowadays. Specialist education is a different story.
"It's sickening how much student loans and how little skills a typical job applicant with a BA has nowadays. Specialist education is a different story."
--------------------------
For those who graduate with a degree in anthropology, underwater basket weaving, philosophy, or other such subjects, yes - they made a bad investment.
No arguement there!
Cheers,
Mammoth
Post a Comment