How many times have you had a conversation that started something like this: "Yes, I have just sold my home for $100,000 more than I paid for it five years ago. I made soooooo much money from my house. However, all those loser renters have missed out"
Invariably, the house-owner has spent little time contemplating the wider cost of house ownership. However, we no longer have to go through the tedious exercise of explaining that there are such things as utilities, local taxes, and realtor commissions. All we have to do now is refer them to this site.
the last few months, for a fleeting moment, I have occasionally re-examined the possibility of buying. After all, "prices are coming down", I say to myself and at some point, "it has to make good financial sense to buy".
However, the question remains in my mind for about as long as it takes to put in some numbers into a mortgage calculator and wait until the computer returns with the monthly mortgage repayment. Despite recent price declines, housing ownership numbers still don't come within a mile of making it better than renting. Mortgage costs are still way out of line relative to rents. When all the other housing-related costs such as repairs, and taxes are included, owning a house looks like stupidity.
In contrast, renting is akin to having an undated option. It allows the owner of the renter to enter the market when he is "in the money". At the moment, home ownership is a wealth minimising strategy. It is a cash flow killer. With the current misaligned and tramatized market, no sane person would seriously consider buying.
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3 comments:
Anonymous said...
Global real estate investment is still buoyant but a few cracks are starting to show as higher borrowing costs begin to bite, making 2007 a pivotal year after an extended bull run in property prices.
http://news.yahoo.com/s/nm/20070624/bs_nm/property_summit_outlook_dc
A bullish mix of surging rents, cross-border investment, capital values, and shrinking or stable yields remains intact in many parts of the world, where the amount of capital chasing investment opportunities still exceeds the amount of physical stock available.
But worries over US subprime mortgage loans and Spanish housing, tighter Chinese regulations, cancelled property company flotations, and weak debuts by British real estate investment trusts ( REITs ) suggests the market is at a turning point.
Markus Arelius said...
And yet single family homes are selling in OC California at $600K or more a pop. The volume is way down, but if you're desperately looking for "greater fools", they seem still be in abundant supply.
I give the whole thing another 6 months. By then the PANIC stage will have set in. Even if the "fool is greater", he or she won't be able to pony up to the bar with financing of homes 10 times their gross monthly income. And prices? Look out below, dudes!
Mr. F.O.W.L. said...
Great article! I always hear about folks who are pressured into making the big jump from renting to buying.
"Your paying the same amount for your rent that you would for mortgage on a new home...."
That is always a common line.... Its the other costs people sometimes forget to factor.