Re: Renting vs buying
AskAsa
4/26/2011 7:20:36 PM
Scott, in New York property taxes are killing the housing market. Take that $400,000 house you mentioned. Well, first it'd be hard to find on some parts of Westchester County. The median sale price in the 1st quarter here was $552,750--and that's 8% lower than a year ago. (Incidentally, you won't get anything special for that $552,750--just a standard 4 bedroom, with a one or two car garage...you may even have a shared driveway. So let's say you find a middle of the road house.
Let's say you get a bargain--$500,000. In the town where I live, the property tax on that house is around $15,000. Yes, no joke. So with 20% down, a 30-year fixed rate mortgage and property taxes will set you back about $3,300 a month. Renting isn't much cheaper here. But some people don't have $100,000 for a downpayment. And with so much volatility in the market, what happens if home prices keep falling -- and you need to put a new roof on that bargain money pit you bought? You won't get a home equity line.
So I'm just saying. It's not always black or white.
I think it will soon be a no-brainer to buy a house, and the bottom will be in, unless they really do follow through with threats to eliminate the mortgage-interest dedcution. If they even discuss that, though, it will be the nail in the coffin of the housing market. The housing market will never recover.
Do I like the mortgage interest deduction? Yes. Is it fair? Not really. Should they take it away? Well they can't now, because the housing market is already so screwed up. So it would be just plain awful timing to even consider it.
Here's why it makes sense to buy now: Housing affordability is approaching 20-year lows. But this doesn't even take into account the mortgage interest deduction.
Let's say you want to buy a $400,000 house. The rent on an equivalent place is probably about $2,000 per month on that. Let's say that instead you put 20% down ($80,000) and borrow $320,000. With the low rates, your mortgage payment will be about $2,100 per month or maybe less -- nearly equivalent to the rent. But you can deduct most of those mortgage payments from your taxes, so you will actually end up with a lot more take-home pay if you buy rather than rent.
This is what makes the mortgage interest deduction the biggest tax loophole on earth and why it's fundamental to the housing market. It's also pretty much the only reason that houses are a good investment (houses only appreciate with the rate of inflation over time).
I think the real reason the housing market is still soft is that it's really hard to get a loan -- even for those that do have jobs.
I am a stock investor. not very interested in the real estate. But I do think people shall buy their own houses to live inside if they can AFFORD. Government urges people to buy houses, no matter they can afford it or not. The policy backfired for the past decade.
Renting vs buying
Tenacious
4/26/2011 3:36:59 PM
Yea you waste money when you rent. But at least you know in advance how much you're wasting. Buy a house and you can lose way more than you ever dreamed,
You're so right. Buying a house is stressful for first time buyers even in good times. It's understandable they feel uncertain now.
Noreen, I applaud you for data mining some amazing nuggets of information from the bleak rockpile that is the housing market, but at the end of the day it still boils down to location, location, location doesn't it?
I was reading a feature in the Huffington Post the other day--America's Top 10 Foreclosure Ghost Towns--Send Us YOUR Pictures!
With headlines like that, who needs analysis to spook first-time buyers, new-home buyers, ANY buyers?
Except, I guess, Washington DC buyers. But maybe that's only a blip caused by all those Tea Party Congressmen FINALLY getting fed up with sleeping on cots in their offices!!!
Housing Market
ProfR
4/26/2011 1:48:18 PM
The housing market is still dogged by foreclosures and low prices in many markets and even though we see some improvement in jobs, this is not yet sustainable.
I don't think we will see presistent improvement in the housing market until we see stabilization of home pricing, improvement in loan terms and real sustained job creation.
ProfR
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