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Home Ownership may no longer be the best investment ...
Several factors are really starting to drag on the real estate market ...
Fed's new policy of increasing interest rates, which raises monthly mortgage payments and disqualifies more and more potential home buyers whose incomes are not rising.
Permanent 'export' of white collar jobs outside the USA is gradually causing more and more homes to be put on the market (as owners are unable to find replacement jobs that pay anywhere near as much as their former jobs, thus unable to keep making those big monthly mortgage payments).
Fannie Mae etc. are coming under investigation - primarily in regard to granting real estate loans to too many people who really didn't have sufficient financial stability to warrant the loan. As these loans have a quasi-gov't guarantee, pressure is coming down to tighten lending criteria in the future thus disqualifying even more potential home buyers.
Some 40% of all outstanding home mortgages were written as ARM's, meaning that as interest rates rise so do the monthly payments. The interest rate increases which have already taken effect have already put pressure on household budgets of those homeowners with ARM's. As interest rates continue to rise many of these are going to go underwater, throwing yet more homes on the market.
Anecdotal reports from real estate agents in many areas now indicate that the 'supply' of homes for sale has now extended to 90-120 day's worth versus the typical 30-60 day's worth last summer. Same reports indicate that many home sellers are now dropping the asking price after their home hasn't sold after being on the market for 3-4 months.
State budgets deeply in the red are resulting in substantial increases in property taxes (like 20-30% in some areas), further increasing the 'average monthly cost' of home ownership.
All in all, it would appear that the "housing bubble" of ever rising home prices and ever eager home buyers standing in line to snap up houses as soon as they hit the market is becoming a thing of the past.
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Re: Home Ownership may no longer be the best investment ...
Timely post Melonie. I was just griping to a friend about how the cost of living is squeezing most of my family out of our home state. Insult to injury: this state mismanages most of the money it fleeces the residents out of too.
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Re: Home Ownership may no longer be the best investment ...
Might be a good time to look at buying some of those houses sitting on the market at lower prices and renting them. People still gotta have a place to live.
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Re: Home Ownership may no longer be the best investment ...
What about forclosed homes? I have heard you can go to the court house for a list of forclosed homes in your area and get them, at the same price the last owner left off paying on.
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Re: Home Ownership may no longer be the best investment ...
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Originally Posted by Katharine
What about forclosed homes? I have heard you can go to the court house for a list of forclosed homes in your area and get them, at the same price the last owner left off paying on.
This IS a possibility. However, right now there are so few homes put on the block for tax leins etc. that a 'back room deal' has usually already been cut between the developer and the leinholder before the auction even takes place. Plus, just like any other auction, the buyer needs to be ready to pay cash on the barrelhead. However, I would guess that within the next couple of years that many many more homeowners will run into serious difficulties thus there will probably be many more homes on the auction block, and many more bargains to be picked up by those with cash in hand !
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Re: Home Ownership may no longer be the best investment ...
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Originally Posted by Bridgette
Might be a good time to look at buying some of those houses sitting on the market at lower prices and renting them. People still gotta have a place to live.
The problem here is that if you buy a house today for $100,000 at say $20k down and $80k mortgaged, and the local real estate market declines 20% over the next year or two, then you'll find yourself still owing 100% of the value of that house (market value having dropped from $100k now to $80k then) with your $20k down payment having basically evaporated. Plus if you own the house you'll also be facing paying increasing property tax payments, increasing insurance premiums etc. AND your potential renters will likely be deciding whether to pay their rent to you, or to pay their credit cards, or to buy groceries !
The exception to this rule of course are rental properties geared to the 'subprime' renters market i.e. those on public assistance with rent payments guaranteed by the local government. Of course, being a 'slum lord' brings many new problems into the equation (like crack pipe explosions, bullet holes in your walls, missing light and plumbing fixtures ...)
A better alternative is to rent from somebody else during periods of declining real estate prices, let them take the loss, then buy the property at a bargain price after they find themselves in financial distress a couple of years down the road LOL !
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Re: Home Ownership may no longer be the best investment ...
Melonie
You Rock.... ever thought of writing a money managment book? You would kick ass.
I find your post to be educational.
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Re: Home Ownership may no longer be the best investment ...
With the exception of the house you live in, stocks have been a more profitable investment then Real Estate for years..... assuming you pick stocks well.
You CAN buy foreclosures "on the Courthouse steps" for the note balance but this usually is more then appraised value. Almost nobody loses thier house without borrowing all they can on it first. If its a bankruptcy related sale .... expect to pay appraised value because the trustee can't let it go for less without Major paperwork.
Rental R/E is a bigger painin the ass then an unlubricated 12 inch dildo. Not for amatuers.
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Re: Home Ownership may no longer be the best investment ...
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With the exception of the house you live in, stocks have been a more profitable investment then Real Estate for years..... assuming you pick stocks well.
Yup, agreed. As long as home mortgage interest and property taxes on your 'primary residence' are tax deductible, it definitely makes sense to own the house/condo you plan to live in. But when considering real estate as an investment, you're absolutely right that stocks have historically provided better returns with a lot less day to day headaches than owning and managing rental property. If you have your heart set on the real estate segment, you can buy into a REIT or you can buy stock in homebuilding companies, both of which allow you to reap any potential gains in the real estate sector without all of the grief of being a 'hands on' landlord. A note to the wise though, if the real estate sector tanks (IMHO this is a when not an if), REITs and homebuilder stocks will tank right along with the real estate values.
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Re: Home Ownership may no longer be the best investment ...
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Originally Posted by Katharine
Melonie
You Rock.... ever thought of writing a money managment book? You would kick ass.
I find your post to be educational.
Thanks, Katherine. The problem when attempting to do anything like this is credibility. My degree is in respiratory therapy not economics. I work as a big boob stripper not a banker or broker. Nobody in the publishing industry would give me the time of day if I submitted anything 'serious'.
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Re: Home Ownership may no longer be the best investment ...
Katharine
Whilst I totally agree with you that Melonie tends to know her stuff (always thankful for having Mel around the Dollar Den).. I also agree with Mel that she is just an informed investor (that is all). She isn't "qualified" to give advice. All she gives is her opinion.
Therefore see it as such.... an educated, informed opinion.... yet always speak to those who are qualified to give you such advice. (Even tho' they can be falliable too.... and there isn't THAT many who are really good - I'm lucky I have found one).
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Re: Home Ownership may no longer be the best investment ...
This is a great thread on this Melonie. I found it very interesting. Ive been thinking about my future and buying a house someday probably in the next ten years. CA....is just not what I thought it would be. So this information is general for me to give my house buying plans another thought.
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Re: Home Ownership may no longer be the best investment ...
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So your $100,000 house that may be worth $80,000, will eventually go up. And your mortgage on a $100,000 will be less than what you'd pay on rent for a $100,000 house.
This is probably true based on 'recent' history, but not necessarily true if you look back to the 'great depression' years. It took over 20 years for some properties to regain their 1929 price levels, and rents on the same property in the early and mid 30's were only a small fraction of the rents charged on the same properties in 1929. Both the sale price of houses and the going rates for rents are a function of supply and demand, so if lots of people are trying to sell or rent property and if few people have the qualified financial means to buy those properties or pay those rents ...
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I also agree with Mel that she is just an informed investor (that is all). She isn't "qualified" to give advice. All she gives is her opinion
My attorney and I thank you for posting this disclaimer on my behalf (and so eloquently as well). As you point out, being a 'financial advisor' carries with it specific requirements, duties and responsibilities for which I am not qualified nor ready to accept even if I were qualified.
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Re: Home Ownership may no longer be the best investment ...
But you could still create and write you'r own e.book . I'v heard of all kinds of people who publish thier e. books on thier own knowledge and assumptions..then copy right them. and disclaim them as a matter of opinion only. or just keep it..... for fun. hell for that matter you could copy all your dollar den post's for dancer's investment's.... to dancer's by a dancer...then you would be taken seriously....
just just throwing pennies down a rainbow for you......:))
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Re: Home Ownership may no longer be the best investment ...
I have to disagree. I own three homes. The most recent one being buit for 162,000 sep of 03 is now appraised at 249,000. I dont know of any stocks giving a return like that and this is the case all over the state I live in. People bought houses for like say 120,000 three years ago and their worh like 220 now. The average listing is only on the market for 30 days in my area. Also mellonie those with arms dont really have to worry about rising rates. Arms are capped loans they can only go up so much over the life of the loan. I think its a few points, so that theory is a bit off. I still say home ownership is the best bet. Unless you want to rent a measly 2 bedroom apartment in my area for 800 a month. Hell thats my morgage payment. I say if you have good credit home ownership is still the best option.
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Re: Home Ownership may no longer be the best investment ...
I don't think anyone is disputing that the last three years were a good time to buy.
Melonie is saying NOW is a bad time to buy real estate as an investment.
I personally feel that real estate as a primary residence is very rarely a bad investment, but would hold off on buying investment properties for a little while for the reasons Mel listed.
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Re: Home Ownership may no longer be the best investment ...
I guess it really depends on were you are located and what the markets like in your area.
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Re: Home Ownership may no longer be the best investment ...
Funny, I've considered the last three years to be more of a seller's market than a buyer's market.
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Re: Home Ownership may no longer be the best investment ...
^ Agreed, Adina.
I just sold a house this weekend at a staggering profit. I'm still in shock.
However, being that I'm considering relocating to Boston, I'm terrified at the prospect of buying something at the top of the bubble. Boston already is unbelieveably expensive, and like Seattle and San Francisco, the pricing trends are faltering as the bubble begins to contract.
I have to agree with Melonie. The trends in the market more broadly make me very nervous.
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Re: Home Ownership may no longer be the best investment ...
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Originally Posted by Casual Observer
^ Agreed, Adina.
I just sold a house this weekend at a staggering profit. I'm still in shock.
Oh, in that case, will you marry me? ;)
Everyone's been predicting a correction in the housing bubble, and so far it's been the only thing immune to the downturn in the economy. But I have a feeling it will happen in the New Year.
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Re: Home Ownership may no longer be the best investment ...
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Oh, in that case, will you marry me?
Do I still have to read Mother Jones to you?
;)
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Re: Home Ownership may no longer be the best investment ...
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I don't think anyone is disputing that the last three years were a good time to buy.
Melonie is saying NOW is a bad time to buy real estate as an investment.
Yes, exactly. The classic pitfall of investors is to start assuming that historically 'abnormal' run-ups in particular sectors will continue forever, thus they buy in at the top just before the bubble bursts. Tech stocks were at this point in 1999, and IMHO real estate is at that point right now.
In deference to Michele, there will always be specific markets/companies which because of special circumstances can and do sidestep the general trend. However these special circumstances may not remain advantageous forever either ! Major changes in population migration patterns (i.e. Florida hurricane exodus), major changes in state tax policies etc. can cause quick turnarounds in specific housing markets (i.e. property on the Nevada side of the lake rising like a moonshot).
Also just to clarify, I was not referring to buying a primary home for the purpose of living in it as something which should be avoided at all costs - merely scrutinized. Primary home ownership carries with it many advantages i.e. rent avoidance, deductibility of mortgage interest, which can increase the de-facto return on investment. However, even with the purchase of a primary residence, nobody wants to see their 20% down payment money simply vanish either ! But the greater point I was trying to make was about buying real estate as an investment.
Coincidentally or not, the Sacramento Bee just published an article on this subject with some interesting and disturbing California home buyer statistics ...
INDEPENDENT ANALYSIS ~
"They have a very interesting graph at the very bottom of the article (Looks like advertisements). This graph shows that between 1988 and 1990 in Sacramento County (right before that last big drop in California) the percentage of first time buyers dropped from 60% down to 40%.
California as a state during the same period actually increased it's first time home buying stats. I would think this would be because around 1988 a lot of first time home buyers would move to lower-priced suburbs, but not completely out of the state. (not so today where even low priced suburbs are out of people's price range)
Since the affordability factor is also so out of whack, today's first timers are sitting on the sidelines or moving to more affordable states.
Since Dataquick only has tracked this since 1988, I can't see what the preceding amounts were, but it looks like the only other time we have seen this kind of reduction was in 1990 and it wasn't NEARLY as severe as the numbers we are seeing today.
The bottom line is that prices cannot continue to appreciate up if first time home buyers are shut out of the market."
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Re: Home Ownership may no longer be the best investment ...
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Originally Posted by Casual Observer
^ Agreed, Adina.
I just sold a house this weekend at a staggering profit. I'm still in shock.
However, being that I'm considering relocating to Boston, I'm terrified at the prospect of buying something at the top of the bubble. Boston already is unbelieveably expensive, and like Seattle and San Francisco, the pricing trends are faltering as the bubble begins to contract.
I have to agree with Melonie. The trends in the market more broadly make me very nervous.
Wow casual.. good for you~~!! I remember reading that you were trying to sell in the chat room months ago!
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Re: Home Ownership may no longer be the best investment ...
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Originally Posted by Adina
Oh, in that case, will you marry me? ;)
Everyone's been predicting a correction in the housing bubble, and so far it's been the only thing immune to the downturn in the economy. But I have a feeling it will happen in the New Year.
LOL, another stripperweb marriage!!! yey lol
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Re: Home Ownership may no longer be the best investment ...
CO, I sold a house in Lauderdale last summer for literally twice what I paid for it 5 years before. I was shocked at what the market was bearing. I don't see how young first time buyers are able to get into the market.