Yes, some days the housing crash feels like it's happening in slow motion, even though some weeks (Exhibit A: This Week) feel faster than others.
Good god, you ask, why haven't prices (if we knew the truth, not the NAR and Commerce Department BS) crashed 50% already?
Why aren't we in Desperation stage by now - can people still seriously be in Denial?
Why isn't the Great Housing Crash the cover of Time magazine already?
Why aren't Desperate Homedebtors up in arms, protesting in front of the NAR head office in Chicago?
For those of you who complain that this is taking forever, I've got some bad news for you. This is gonna take some time. Maybe (brace yourselves) ten years. Look to Japan.
But just look how far we've come in a year and a half - from lines of sheeple camping out in front of new condo developments, to lines of people camping out at foreclosure auctions.
From The Corrupt David Lereah writing a book on how home prices will never go down, to The Corrupt David Lereah unsuccessfully and unconvincingly calling bottom every month.
Be patient, the crash is FIRMLY underway. But this is gonna take years, not days, not weeks, not months.
Years.
71 comments:
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But this is gonna take years, not days, not weeks, not months.
++++++++++
Good, so I reckon that means HP is here to stay. My guilty pleasure.
HP is the bubble blog without a plan. Had no plan when I started it and have no plan today.
I just want the housing bubble and crash over with. And it's disappointing because of the size of the bubble that the size and length of the crash will be beyond our wildest dreams.
In Japan, home ownership is now known as something only a fool would do. Perhaps that's the point we need to get to in the US before this is over.
Get used to renting HP'ers. Or losing money. Your choice.
As to HP, we'll see where this goes. Any input appreciated.
No ... it wont take 10 years to die. Japan is a bad example.
They have a huge positive savings rate. Over 10%. They have a expansion strategy in several other countries. Their have a sense of responsibility and look at debt as a insult to their family name, not look at debt as wealth.
Its slo mo ... but now 10 years slow. Its gathering steam and it will firmly snowball and rapidly.
Cool.
Cow_tipping.
Americans will default much more quickly on a contract or loan than the Japanese (IMHO) so I'm guessing it will be a two to three year run to the bottom and it will stay there for a while.
Smug
Remember, the Japanese were bombed in WWII with Fat Man and Little Boy because their mentality is to never surrender. Americans will throw in the towel (financially speaking) as soon as they have to cut back on trips to Starbucks or the mall or Bass Pro Shop, etc.
Smug
I'll take tighter lending standards for a start, it cuts down the competition. Couple that with soft prices for a few years and I will be happy as a clam. The question really is, what will happen to the Brits if prices don't come down?
The decision as to whether it is better to buy or rent must always come down to the numbers. Saying that it is always better to rent is just as foolish as saying it is always better to buy. It's a numbers thing, thats all.
There was to be a worse bloodbath on wall street and the bleeding was long overdue, but there was some behind the scenes stuff going on, you see the scrambling with china and all, if the US pisses of China, hang on. Eventually though truth happens. All will someday be known. The war with Iran was to start this week too, and some here know that. The major announcement has been postponed a week to try to spin it too.
There was an as in our local paper from Countrywide that says and I quote "Don't let the down payment stand between you and your dream home".
Wow, are they really still serious about this stuff?
Stupid people only cared about the payment, not the price they paid
Have been gone all week at Zion Naitonal Park - not great WIFI there! But nice place. . .
Missed the BIG stock meltdown - I was reduced to Radio!!?? But it was fun to listen to. . .drove through "foreclosure gulch" on the way back - Temecula and Mueretta - Riverside County - wow . . .so many homes for sale. . .Countywide was the talk of KASH Radio 1700 here in San Diego on the drive home - when will they come clean. . .everyone is now waiting, including the MSN!!
I can afford a bubble house, albeit small, in my area. I won't buy based on the price. With 150K in family income, I know I am not wealthy according to DC area standards. But I want more than a 50 y.o. shack with 4000 - 4500$ of mortgage (&insurance/taxes) payments. Traffic is so bad, I won't move further out. So I wait; if things don't get better, I will move to another city in 2 years and pay 50% down on my new house.
Years is right.
It will take that long to wring out the last vestige of home from the clueless, homedebting, 401(k)/IRA/mutual fund holding, sheeple.
In the interim time, look for all manner of "back and forth" "up and down" and TONS of spin by Wall Street, mainstream economists, the government, the Fed, the REIC, and evey one else with a vested interest in keeping this Ponzi scheme alive.
So, hold on tight, stay the heck out of the stock market, move your money into treasuries via www.treasdirect.gov, get some physical gold and silver and pray the masses don't kill you and eat you.
This is it. The big one. No kidding, folks. Woe unto him who does not pay attention to the meltdown of the "Bretton Woods II" system.
There was an as in our local paper from Countrywide that says and I quote "Don't let the down payment stand between you and your dream home".
Cool. I can think of other statements:
"Don't let feeling obligated to pay back a debt stand between you and your dream home"
"Don't let not having a high enough salary stand between you and your dream home"
You can never time the end exactly, like the old saying goes "He predicted twelve of the last two recessions."
Why "IT" hasn't happened yet.
http://www.itulip.com/forums/archive/index.php?t-453.html
Not yet, but, sadly, eventually.
Stupid people only cared about the payment, not the price they paid
Kind of like when renters say I only pay $800 for rent when it would cost $1500 to buy...forgetting about the tax advantages and principle paydown of a mortgage which depending on their tax bracket could make their effective payment lower than $800.
Right you are, stupid people do think like that.
I agree with Cow Tipper and the others. The Japanese are savers. Americans are not, if you aren't staying up the Joneses you are a loser. Saving is for losers. That being the case, most Americans are going tits up when there ARM adjusts. So the collapse will be swift with the middle class. The rich however won't be phased.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aXn5jEVEfm40&refer=home
Looks like sub-prime will be paying the price now for all the people that did not care about the price paid and only worried about the down payment & the monthly payments.
1-People stop and sober up realizing that lower rates are secondary to PRICE in determining afford-ability of a mortgage loan.
RESULT: A drop in demand & subsequent rise in supply.
2-Sub-prime borrowers default.
RESULT: Rise in inventory at lower prices
3-Sub-prime lenders pull back & standards tighten.
RESULT: Lower demand, fewer buyers , price drops now that sellers are competing for buyers.
4-Sub-prime infects Alt-A & A prime paper because we find out that their standards were lowered also.
RESULT: The cycle repeats itself.
Time Horizon: Speculative but:
Sub-prime plays itself out this year.
Alt-A & Prime start this year & cycle out in 2008.
It will be a great time to buy at the end of FY 07 & 08 but you must be in it for the long term.
Unfortunately banks will be in no mood to risk mortgage loans on anyone except those with pristine credit & 20% down and super high & stable income. And after all the credit histories tossed on the trash heap this year & next there will not be too many people in that position who are in the market to buy a home.
New Century Faces U.S. Probe; Fremont Quits Subprime
"New Century Financial Corp. said it's the subject of a criminal probe and Fremont General Corp. agreed to a cease-and-desist order with bank regulators in the biggest regulatory actions to emerge from the subprime mortgage meltdown."
"Fremont said a regulatory order will require it to stop giving mortgages to people who can't repay." (What a novel concept.)
New Century is the second-biggest subprime lender. Fremont is the fifth-largest subprime lender
More commentary here: WSJ
What a joke. They didn't have the fortitude to intervene 3-4 years ago when it could have made a difference.
the thinker-"Saying that it is always better to rent is just as foolish as saying it is always better to buy."
I think Keith was implying as long as home values are depreciating, it makes sense to rent.
I've been playing around with some very good Rent vs. Buy calculators based on the numbers in my bubble area in Cali. The most sensitive parameter with these calculators was your assumption on annual home appreciation. Generally, I could get the numbers to break even if I assumed a greater than 3% annual home appreciation, even at these prices. When I plugged in a small negative annual appreciation, man, it is a no- brainer.
A depreciating house will literally eat up all of your tax advantages. Tax advantages used to be the biggest selling point in the old days before the bubble. Since the bubble, the major selling point has been free equity you will gain in your house. Those days are gone so I think they'll have to break out the tax advantage argument again.
Point being, in a depreciating market you gain no tax advantages (when compared to renting), so again, they will still be lying.
Who Knows said...
There was an as in our local paper from Countrywide that says and I quote "Don't let the down payment stand between you and your dream home".
Wow, are they really still serious about this stuff?
March 02, 2007 11:18 PM
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DEADLY serious
The war with Iran was to start this week too, and some here know that.
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Maybe we all will be too busy getting drafted to Iran to worry about Bubbles....
It rolling already. Most sheeple woudl rather shut their eyes than jump out of the way....
Regulators To Tighten Subprime Rules Amid Fresh Concerns
In a filing with the Securities and Exchange Commission, Countrywide said it was seeing a rise in late payments. Payments were at least 30 days late on 2.9% of prime home-equity loans serviced by the company, up from 1.6% a year earlier and 0.8% at the end of 2004, the company said.
Late payments were even more common for its subprime loans, the Calabasas, Calif., lender said. Payments were late on 19% of its subprime mortgage loans, compared with 15.2% at the end of 2005 and 11.3% at the end of 2004.
Jeez, what a depressing article you linked to here. I need to tune in to CNBC to cheer up a bit... OOPS, they don't look so cheerful today. Let's see, the article seems to conclude that prayer may be the only way to survive the near term economic catastrophe.
I changed my mind. I no longer want to ride this ride. I thought it might be cool to see the greedy and foolish take one in the shorts but I think the price we ALL may have to pay is going to be too high. This sucks.
JAFO
Housing won't crash overnight unless people lose their jobs en masse. Available capital would also have to dry up overnight (although it seems to be happening in the subprime market).
As long as people live in their houses, it will likely be a long slow bleed. I think this scenario is actually worse than a quick drop. At least a quick drop would turn into a growth trend more quickly. There would be a moment of "Housing Panic", but it would soon pass. Instead, we are likely to see people feeling more depressed, especially the ones who are capable of paying their mortgages but can't get out of their houses because they are upside down on the mortgage for years.
Meanwhile, most of the people who will truly price their houses correctly are the most motivated, so you have only motivated sellers who are successful in getting rid of their houses. Some truly desperate sellers, but simply motivated for the most part.
Its unwinding alright. Checkout Marketwatch.com re the downfall of some major subprime lenders: FDIC shuts down New Century and Fremont General.
If people with bad credit no longer have access to financing, demand for housing will take a dive along with home prices. Eliminating these buyers from the market will bring down prices more than the coming foreclosures.
"Housing is always sticky on the way down"
Gotta keep remembering that quote. As slow as Japan, no way! Spoiled Americans will walk away from their financial obligations in droves. This crash is going to spiral down at its own pace, although a lynchpin event (war with Iran, oil shortage, terrorist attack, failure of a MAJOR bank,etc.) could hasten the process!
NAR goes to court
2013 will be the bottom.
Take a look at NEW and FMT if you have not already. With historically low reserves all across the board, expect more.
to see how low it gets, got to teleMansion.com to find houses as low as $4,999
You toothless ghetto chimps keep shopping for Chinese made junk at Target and Best Buy. All is well.
I'm not sure this is going to be like Japan. The japanese were frugal and I've read stories that people with declining house values continued to pay their loans even when upside down.
I think the U.S. crash will be much faster and cataclysmic. The people who took out these loans with only the faintest glimmer of hope are very irresponsible people and I think they'll fold real fast and default, leaving a lot of lenders, he he (I love this term), holding the bag.
So hopefully I can pick up that McMansion for pennies on the dollar and hopefully, there will still be snow on the ground when I evict the squatters. I can just see the little tikes holding their stuffed animals crying in the snow crying, "Daddy, why is the sheriff taking our furniture?"
That crackpot Warren Buffett thinks the US economy is in trouble. He's the same idiot who missed out on getting rich under Clinton's wonderful the dotcom economy
Freemont is #78. 9B. First big bank to fail?
http://www.onlinebankingreport.com/resources/100.html
Sure hope your bubble sitter income fund is not at Freemont.
Black Monday? Might be too late now.
Keith, your new entry. It's a goodie. Friday evening press release (never good news), on a broken stock. Taken out and shot.
http://finance.yahoo.com/q?s=new&x=0&y=0
the lip-smackin phrases of art:
"in breach of covenant"
"criminal SEC investigation"
It's Enron in The OC!
It's looking as oficial as it ever will. The housing bubble deflation is sending the consumer and investor into panic mode.
America is such a bunch of B.S. and fraud. No wonder the rest of the world laughs at us.
Oh boy oh boy oh boy (Imagine "Flounder" from Animal House).
It keeps getting worse over at the lender implodo-meter:
http://ml-implode.com/
Apparently NEW CENTURY is Terminal.
"that substantial doubt exists as to the company's ability to continue as a going concern."
And if that is the country's 3rd largest mortgage lender, watch out. The others are probably hiding the same disease. These might look OK on the outside but they're rotted out on the inside (Like Anna Nicole).
Just remember, the salesmen have been in charge for the last 5 years. You aren't going to hear any bad news until dead bodies start falling out of closets.
This is ending up even worse that I imagined. If the termites have eaten out this much of the financial house of cards, it won't be long until the whole thing comes crashing down.
I wish I knew the distribution of these bad loans, i.e. who owns them.
I'll keep shorting the sub primes but at some point Wall Street gets numb to the bad news. A new sector needs to be mortally wounded by this to make some fast money shorting stocks.
Hey Keith, we are committed. HP is not for the faint hearted. We HPs bring the best and the worst in people, after all this is a blog with an attitude problem. But we shoot straight, we're prepared, and we know how to be patient. Meanwhile, this blog only gets better.
Man, I can't wait to clean up on the wreckage of the American economy. I'm going to be laughing my ass off at the losers (in the San Fernando Valley for instance) who paid 800,000 for a house worth 300,000! I have absolutely no sympathy for greedy idiots. I can forgive greed. I can forgive having a soft head. But the combination of both deserves only contempt. I have only admiration for flippers who got out in time, those who took advantage of the stupid bankers and stupid buyers.
The high price of stupidity is about to be paid, but unlike morons like Blowfly, I didn't mortgage my future.
I have cash enough to buy 2 or 3 houses when we hit rock bottom. Sold out my gold and silver right before Tuesday's crash because they had spiked up and profit taking seemed like a good idea.
I think gold is going to recover with a vengence. It's WAY oversold It may have been liquidated by investors who were trying to cover losses in other areas or was just the baby thrown out with the bathwater.
With this bad news released after the Market closed on Friday, I'm wondering if Monday won't be a repeat of Black Thursday, 1929.
No problem, with the Dems in power we can get Roosevelt-like policies in place that will make sure the next depression lasts 8 years longer than it would have if left alone.
Oh, you didn't know that Roosevelt actually prolonged the Depression? Where have you been?
http://tinyurl.com/2lnbxf
Oh, when they make the movie about Ludwif von Mises, Ben Kingsley will have to play him.
Keith, It's a typical human tendency to get bored right when all your efforts are about to pay off.
Get ready to be interviewed. You have the most, um, melodramatic blog but as it turns out, the most accurate of all because you didn't pull any punches.
Make sure you are financially set up for a crash in the U.S. before moving on.
http://ml-implode.com/
As of 20070303:
30 lenders have now gone kaput
The pace is picking up that is more important,
wwweeeeeee
**** hands up in the air ****
Anonymous said...
I can afford a bubble house, albeit small, in my area. I won't buy based on the price. With 150K in family income, I know I am not wealthy according to DC area standards. But I want more than a 50 y.o. shack with 4000 - 4500$ of mortgage (&insurance/taxes) payments. Traffic is so bad, I won't move further out. So I wait; if things don't get better, I will move to another city in 2 years and pay 50% down on my new house.
March 03, 2007 12:04 AM
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I'm in the same boat. 135k with about 80-100k cash on hand for a down payment. But in DC that will get you virtually nothing. I am waiting out 2007 & hope to buy in the fall of 07. The P/E just needs to make it a 50-50 split either way and I'll buy, but right now the P/E says rent.
Anonymous said...
Stupid people only cared about the payment, not the price they paid
Kind of like when renters say I only pay $800 for rent when it would cost $1500 to buy...forgetting about the tax advantages and principle paydown of a mortgage which depending on their tax bracket could make their effective payment lower than $800.
Right you are, stupid people do think like that.
March 03, 2007 12:40 AM
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You're right anon but that's not what's going on here. Everyone here has run the P/E and determined that renting is more cost effective EVEN CONSIDERING THE TAX ADVANTAGES of owning verses renting.
Friends who did not run a P/E 5-6 years ago and rented now regret not owning. Some are jumping in now when they should be holding back, why? They are looking only at the initial teaser rate payment. I.e. they are making the same mistake they made 5-6 years ago.
a $1500 mortgage is less than $800 with tax advantages? What tax bracket? 80%?
Top tax brackets are 35%...and home interest phases out over a certain income level. Also renters get a tax deduction of the standard deduction...so not all of the mortgage deduction is new money.
The most the tax savings would be is about 1/3.
Principal paydown in early years is about 0.
What about the maintenance, insurance, property taxes (they're deductible too!)...those are additional costs of the homeowner.
"Kind of like when renters say I only pay $800 for rent when it would cost $1500 to buy...forgetting about the tax advantages and principle paydown of a mortgage which depending on their tax bracket could make their effective payment lower than $800."
I'm really getting tired of homedebtors talking about the so-called tax break. At my income level I don't even qualify for it. People forget that it was severely restricted as a concession for the Bush tax cuts - it goes away at $135k income single and $300k married. A CPA told me that people come in and get the shock of their lives when they find out there's no more "mortgage tax break" at their income level and they wind up owing huge back taxes.
My landlord is also high-incoome and he doesn't get any interest tax break either. But the good news for him is that he's renting me a $1.2 million house in Newport Beach for a mere $3,500/month so he has a big loss he gets to deduct each month ... LOL
And on the tax break side I can deduct a big chunk of my rent for my home office; as a homedebtor, if you take a home office deduction, you are forced to pay most of it back when you sell the house. My father found that out the hard way when he moved and owed big back taxes as a result.
On the myth of principal paydown, the Orange County Register ran an article a few weeks ago on the advantages of renting - here's one of the myths they busted:
Myth: "Renters are throwing their money away."
Fact: "So are owners the first 5-7 years because those payments are all interest with no principal paydown."
Either way you look at it, I'm coming out WAY ahead by renting.
The decision as to whether it is better to buy or rent must always come down to the numbers. Saying that it is always better to rent is just as foolish as saying it is always better to buy. It's a numbers thing, thats all.
March 02, 2007 11:05 PM
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Simply put: I could not say this any better my self.
March 03, 2007 12:40 AM
Still, its a numbers game. Each circumstance is unique.
anon 3:56--
"Top tax brackets are 35%...and home interest phases out over a certain income level. Also renters get a tax deduction of the standard deduction...so not all of the mortgage deduction is new money"
anon, very good point, I keep on forgetting about the standard deduction. Everybody gets to write off around 8K. It's only the write off beyond the standard that is the tax advantage. I don't think most homeowners realize that.
It's very simple to see that if a 300K home is depreciating at a modest 3% per year (=9K/yr) that easily eats up their tax advantage. Meanwhile, renter is paying 1/2 the mortgage payment and saving the rest away and earning small interest. 5 yrs from now, renter will have 50k in the bank (if banks are still around) and will be making a sweet deal on that 300K house that is now worth 250K.
The original FB will have realized no net tax advantages due to their depreciating asset now worth 50K less. But they have been paying twice a month for piece of mind to be a homeowner.
Come on folks, it doesn't take a financial planner to figure this one out! Anybody who has bought in after 2004- present deserves to get scammed. Pre-bubble old-timers with the small mortgages are sitting fine.
Rent vs. Buy
I've been reading several recent posts--"Still, its a numbers game. Each circumstance is unique."
Well, each case is unique but we are supposed to be comparing apples to apple and oranges to oranges. The intent is not to compare the tax benefits of a middle-income person who rents at $900/mo. vs. a bloke with a 300K income who has a 5K/month mortgage on a million dollar house. What's the point of that?
68% of us (if not more) fit nicely under the main part of the bell curve and are wrapped around the middle income. These are generalizations, but J6P who rents at half the mortgage payment (on a similar house, no money down) in a depreciating market will come out way ahead until housing values start moving north again.
Go to any Rent vs. Buy calculator and plug in the numbers. Be sure to use a negative annual appreciation. Remember, apples to apples--- you can't compare two different types of houses. And be realistic with the loan info, most people are 'no money down'.
Rent vs. Buy Calculators---
I previously said, go to any rent vs. buy calculator.... this is the only one that I found that will let you input a negative appreciation number, funny.
http://tinyurl.com/3e3jfz
Anyway, this is by far the best one I found.
re:anon666
How right you are! It all comes down to future appreciation. Everytime I run the numbers, I consider the tax advantaged mortgage interest dedcution, and this is small potatoes. Depending on your income, the coming wave of AMT (alternative minimum tax) may negate this anyhow. Pay down the principle?!? not likely friend! You could pay it down MUCH quicker by saving/investing your money and paying 50% cash for the house in several years - especially at the current rent vs mortgage payment. The ONLY advantage to leverage (DEBT) is during times of appreciation or when cashflow is positive on the leveraged asset.
aren't you all forgeting the hyperinflation that's suppodedly coming? You know from China selling $1 trillion (which was supposed to have happened by now, according to you all). You all scream buy gold, buy gold like abroken record (how's that investment going by the way so far this year?) since the dollar will be worthless and the money presses will be working overtime any day now.
Well if that's what you really believe take out as much debt as you can with fixed long term rates. In a world of hyperinflation best thing you can have is debt with low long term fixed rates like oh I dunno a 6% 30 year fixed mortgage for example.
Unless you don't believe your own bullshit about inflation after all. Which is it?
Top tax brackets are 35%...and home interest phases out over a certain income level.
That is not true. There is no income limit to interest deduction federally. I suppose states may have some limits, but if you're talking IRS, your statement above is false.
anon at March 03, 2007 7:17 PM
Finally, a fresh breeze as compared to the boxed concepts that I hear day in and day out with relation to rent vs. buy. Excellent post; I just wish more people could see it.
With regards to the argument that renters get a standard deduction....sure if you have few deductions make little money then owning has practically no tax advantages for you. That is the situation for most (obviously not all) of the renters here. When I made $30K a year and paid practically nothing in taxes, I didn't appreciate the tax advantages of ownerhsip either.
Personally I had $27,000 total deductions last year (2006). Even if I were renting and had no interest/property tax deduction I still would have itemized since the standard deduction is only $10,000. So for me 100% of my interest/property deductions are truly extra deductions.
My mortgage and property tax is about $1900 a month. Of that right now principle payback is about $500 leaving $1400 as tax deductible. I'm in the 28% bracket so I save $392 a month in less tax paid. Therefore my $1900 is really only $1000 after principle and tax savings are accounted for. To rent my home would be $1600 at the minimum.
Insurance cost for me is $40 a month, making my total cost $1040. As long as the home depreciates less than $560 a month, I'm better off than renting.
"That is not true. There is no income limit to interest deduction federally. I suppose states may have some limits, but if you're talking IRS, your statement above is false."
Yes it does. It goes away at $135,000 for a single person and $300,000 for a married couple. This is a recent change and was made as a concession for the Bush income tax cuts. My CPA told me that many, many upper-income people don't know about it, and are owing major back taxes because they thought they were getting the deduction and underpaid their taxes.
(Interestingly, many people don't know the SUV tax deduction is gone too and they're buying Hummers and Range Rovers not knowing they can't write them off. Another shocker at tax time.)
The only person who will tell you there's no limit to the deduction is a lying realtor trying to close a sale.
frank,
$135,000 is the limit for deducting interest on STUDENT LOANS you bonehead, not interest on a mortgage.
OMG you people crack me up with your absolute lack of knowledge about such basic things.
SUV deduction is alive and well too dude. It changed this year to not allow the full deduction on the year it's purchased but you can still take the depreciation over 5 years. Section 179 didn't go anywhere.
Who the fuck is your CPA man? If I were you I'd get a new one pronto. I can only imagine what other garbage he's feeding you.
I wonder if anyone is still checking this thread..
anon March 4 6:06
The whole key to this discussion is assuming a 'depreciating' housing market. Let's say I had a choice to assume your loan (I bring no money down) vs. renting your home at say, $1000/mo. I'm also assuming this home will depreciate several percent a year for five years. I feel this to be the case in most bubble markets.
You stated that you are paying $1400/mo for tax write off purposes, that is about $16,800 per year. Renter writes off at least 8K (most renters don't itemize) so you gain about 9K more per year in write down than the renter.
You stated 28% tax bracket so your net realization is about $2,500 more than the renter (.28 x 9K). However, renter thinks the house will depreciate by more than $2,500 per year (thus, eating up the tax benefit) and decides to rent and tuck the extra $900/mo. (vs. mortgage payment) into a savings account.
For any depreciation of greater $2,500/yr (minus principal equity), I would lose money by purchasing your house now. By renting, I'm gaining 11K/yr in savings.
When I feel that the homes are appreciating again in value, say, five years, I will take my $50K in savings and apply it as a down payment towards your house, which has lost about %15 in value (assumption), probably more than the $12,000 in tax benefits that you did gain over me in that time. For example, a %15 reduction on a $200K home is $30K.
This argument only applies to renters who have a choice to rent or buy in deflating markets right now. Since you already own your house and you may live in an inflating market, this argument may not apply to you.
Any renter who willingly purchases a house now in a known deflating bubble market is committing financial suicide.
You stated that you are paying $1400/mo for tax write off purposes, that is about $16,800 per year. Renter writes off at least 8K (most renters don't itemize) so you gain about 9K more per year in write down than the renter.
You stated 28% tax bracket so your net realization is about $2,500 more than the renter (.28 x 9K). However, renter thinks the house will depreciate by more than $2,500 per year (thus, eating up the tax benefit) and decides to rent and tuck the extra $900/mo. (vs. mortgage payment) into a savings account.
reread the original post...$27,000 in total deductions which means 100% of mortage interest is deductible and an on top of the $10K (not $8K, not $9K as stated wrongly) that is the standard. So in other words 100% of the mortgage deduction is IN ADDITION TO the standard that a renter would get, meaning the full $16,800 is IN ADDITION TO what the renter would deduct. So I don't gain $9K I gain $17K a year. What it comes down to is $560 a month in savins vs. renting the same house. If the home depreciates more than that I lose money that month. If it depreciates less I make money.
Why is this so hard to understand?
and also re-read yet again. You cannot rent my home for $1000. The rental would cost $1600. Unless you want tocompare apples to oranges in which case go ahead and use $500 as rent since I'm sure somewhere you can rent an apartmnt for $500.
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