The major problem is in the subprime lending with all the defaults..Its the standards and regulations of the subprime lenders that screwed this all up.. They were allowing anyone and everyone to qualify for new homes. State Income and No Doc programs killed the industry. You have people making 25-30K a year stating income of 75-80k a year. Its obvious these people coudn't make payments. How would something like this correct itself? I've been doing mortgages for 4 years now and it was great the last 3 years and 6 months but now its getting to be a struggle. I do mostly refinances but its harder to qualify people now and seems like its headed for worse. Trying to see if its worth staying in the industry and if not I have to figure something out soon as I'm getting married in 9 months.
Before you try to name me an idiot like you have others, Id like to clarify I own my house with zero debt attached to it.
However, during certain times and in certain markets (and this is the time and certainly the case in many markets), right now renting is probably the best choice until prices fall.
Dickie, since youve been around these forums a long time, Im going to assume you are a longtime/experienced sports gambler. Thus, for you to make a statement that housing prices will never retreat where you live is incorrect. This "never happen" attitude by so many real estate believers is exactly why the bust is going to be tremendous.
While you are at the library, find when there was ever the type of speculation in US residential real estate as has occurred the past 15 or so years. Also, while you are there, read about Japanese real estate, which was the worlds rage during the 1980s. The 15 year period from 1989-2004, residential real estate fell 76% and commercial real estate fell 90%.
The current US real estate bubble is going to crash (actually crumbling along the edges now) very similarly as other financial bubbles have throughout history. Certainly some areas will be less affected than others, but some will completely collapse.
Yes but did rent drop 20%, I doubt it.
What exactly is the misconception about paying for someone else's mortgage? like the stock market eventually property will appreciate, I don't see any way that renting over time is better, a year or two maybe...the past few years in real estate has not been the norm.
I agree that rental is a WASTE of cash if you have the money and a secure job ... but what if you don't have the money? what if you want to buy time? what if you need a place that enables greater mobility?
1. Compare buying a house for $300,000 now vs waiting for a year and buying the same house for $275,000 ... and paying $10,000 in rent.
2. Now if we take mobility into account, think what will happen if you get laid off, or decide to quit your job, or find a better job 200 miles away ... you are screwed if you own a house ... but you can leave in a month if you're renting.
3. Now suppose you don't have the money for the down-payment ... paying mortgage, and taxes, and PMI and taking an adjustable, or even a negative amoritization loan is a killer.
Cincy, like I said a year or two yes, over time no...and this recent RE market is an abberation that has corrected itself...it made no sense when it happened and now most everyone who bought into it (pun intended) is getting burnt....You rarely if ever see rental rates drop though and I doubt they did even after the housing price correction.
It doesn't cover ANY REDUCTION of value ... especially when it comes to reductions due to mass layoffs ... l
For example, GE once closed its plant and laid off close to 5,000 workers in a suburb of Ohio. EVERYONE in the area was selling their house. 75% of the houses in the area around the plant were on the market ... good luck trying to get someone to buy a house next to an empty industrial site that is going to rot ... and having to compete with 300 other homeowners to do it.
I agree, but just to play devil's advocate, I think the AMT (alternative minimum tax) might take care of that.
If they don't change the AMT laws soon, almost everyone owning a house and paying $5,000 in real estate taxes will be paying AMT ... regardless of what they earn ... and that will take care of a huge chunk of the benefits of buying vs. renting.
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- Renting is just throwing money away.
FALSE, renting is now much cheaper per month than owning. If you don't rent, you either - Have a mortgage, in which case you are throwing away money on interest, tax, insurance, maintenance.
- Own outright, in which case you are throwing away the extra income you could get by converting your house to cash, investing in bonds, and renting a place to live. This extra income could be 50% to 200% beyond rent costs, and for many is enough to retire right now.
- Either way, owners lose much more money every month than renters. Currently, yearly rents in the Bay Area are about 2% of the cost of buying an equivalent house. This means a house is returning about 2%, and it is a bad investment. Pretty much any other investment is better. If you don't like risk, put your money in US Treasuries at 5%. If you don't mind some risk, you may want to try index funds, which typically return about 10%.
- Landlords are loaning the purchase price of a house to their tenants at a 2% interest rate. This is a fantastic deal for renters. When it is possible to borrow a million dollar house for 2% yearly rent at the same time a loan of a million dollars in cash costs 6% interest, plus 1% property tax, plus 1% maintenance, something is clearly broken. I would think every rational businessman would take the extreme discount renters are enjoying.
- There are great tax advantages to owning.
FALSE. The tax advantage is not significant compared to the large monthly loss from owning. For example, it is far cheaper to rent in the San Francisco Bay Area than it is to own that same house, even with the deductibility of mortgage interest figured in. It is possible to rent a good house for $1800/month. That same house would cost about $700,000. Assume 6% interest, and we can see that a buyer loses at least $4,936 per month by buying. Renting is a loss of course, but buying is a much bigger loss. - Renting:
Rent: $1,800
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Monthly Loss: $1,800
Buying:
Interest: $2,333 ($3500 per month at 6% before deduction, $2333 lost after deduction.)
Other Costs: $1,000 (1% maintenance, insurance, long commute, etc.)
Property Tax: $486 ($729 per month at 1.25% before deduction, $486 lost after deduction.)
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Monthly Loss: $3,819- This is a very conservative estimate of the loss from owning per month. If you include a realistic decline in house prices, as in this rent-vs-own calculator, you'll see that owning right now is a very poor choice. Here's a more optimistic calculator which ignores price changes entirely. House value losses will stop eventually, but it could take 5 or 10 years to bottom out.
- Many people believe you can just reduce your income tax by the amount you pay in interest, but that's not true. Buyers do not deduct interest from income tax; they deduct interest from taxable income. Interest is paid in real pre-tax dollars that buyers suffered to earn. That money is really entirely gone, even if the buyer didn't pay income tax on those dollars before spending them on mortgage interest. You don't get rich spending a dollar to save 30 cents!
- Of course the creeping AMT will eliminate the mortgage interest deduction soon anyway. Ah, you didn't know that there are limits to the mortgage interest deduction and that more and more people are hitting that limit every year?
- Buyers do not get interest back at tax time. If a buyer gets an income tax refund, that's just because he overpaid his taxes, giving the government an interest-free loan. The rest of us are grateful.
- If you don't own a house but want to live in one, your choice is to rent a house or rent money to buy a house. To rent money is to take out a loan. A mortgage is a money-rental agreement. House renters take no risk at all, but money-renting owners take on the huge risk of falling house prices, as well as all the costs of repairs, insurance, property taxes, etc. Since you can rent a house for 2% of its price, but have to pay 6% to borrow the equivalent amount of money, it is much cheaper to rent the house than to rent the money.
- Then there's earthquake insurance. It's really expensive, so most people just skip it and risk everything on the chance that no earthquake will happen. "
Houses always increase in value in the long run.
FALSE. House values are actually constant. Adjusted for inflation, prices in the Netherlands, for example, rose less than one quarter of one percent annually in the 350 years since their tulip bubble. Warren Buffett and Charles Schwab have both pointed out that houses don't increase in intrinsic value. Unless there's a bubble, house prices simply reflect current salaries and interest rates. Consider a 100 year old house. Its value in sheltering you is exactly the same as it was 100 years ago. It did not increase in value at all. It did not spontaneously get bigger, or renovate itself. Quite the opposite - the house drained cash from its owners for 100 years of maintenance and taxes. Its price went up about as much as salaries went up.
My grandmother always used to complain about the cost of milk. "Why, when I was a girl, a gallon of milk cost a dime! Just look at how much people are overcharging for milk now." I asked her how much people got paid back then. "Oh, about $15 a week", came the reply. Hmmm, sounds very much like the reasoning people use now when they talk about how much their father's house appreciated "in the long run" without considering that salaries rose a proportional amount.
FALSE. House values are actually constant. Adjusted for inflation, prices in the Netherlands, for example, rose less than one quarter of one percent annually in the 350 years since their tulip bubble. Warren Buffett and Charles Schwab have both pointed out that houses don't increase in intrinsic value. Unless there's a bubble, house prices simply reflect current salaries and interest rates. Consider a 100 year old house. Its value in sheltering you is exactly the same as it was 100 years ago. It did not increase in value at all. It did not spontaneously get bigger, or renovate itself. Quite the opposite - the house drained cash from its owners for 100 years of maintenance and taxes. Its price went up about as much as salaries went up.
My grandmother always used to complain about the cost of milk. "Why, when I was a girl, a gallon of milk cost a dime! Just look at how much people are overcharging for milk now." I asked her how much people got paid back then. "Oh, about $15 a week", came the reply. Hmmm, sounds very much like the reasoning people use now when they talk about how much their father's house appreciated "in the long run" without considering that salaries rose a proportional amount.
