Housing is not an investment but what if market behaves like it is?

NEW -> Contingent Buyer Assistance Program
"So many thoughts running through my head....like, saddled with a mortgage the size of yours there is probably no doubt you will have to work the entire 30 years in order to afford it....etc. I'm glad you are happy with your choice however."



no. my first property is paying more than half of my mortage.



work will always be part of my life and i don't mind it because i like the good things in life and i enjoy my work
 
"but the folks that bought at the peak will be off $400K if they are nutzo enough to ride it out"



or they don't care, they can afford their monthly payments and have nood need to sell...



this is like talking to a mortage broker.... oh no don't pay points, we'll refi you... again and again so that i can make money...



if you do it right the first time, you don't have to sell, you don't have to refi and you'll be done in 30 years (latest)
 
<p>If they can afford it and they have $400K in negative equity on a property I think that puts them into a class of uberrich that is so far removed from any normal working class or low level professional's situation we can discount it as being a non event.</p>

<p>If I was $400K stuck on a property I paid $750K for (which is what I'm assuming will be the case in the neighborhood I'm moving into) I would have to think real hard about what I could do as opposed to what I SHOULD do.</p>

<p>If you lose $400K in unrealized equity and are still positive who cares? Forgive me for assuming, but I suspect this is your situation.</p>
 
We have probably lost $200,000 in unrealized equity, but it has had zero effect on me mentally or financially. I suppose if one of my children (adults, with insurance), needed an uncovered $200,000 operation I might feel a bit regretful. The hub never felt that those bubble prices were real, so he has even less invested. Our former mtg payments seem to be going to paying for gas, paying for dentistry, and paying off the credit cards. And we plan to live here at least 5-7 more years. So we are enjoying the house as an investment I suppose. But I had hoped to pay for some fun with my former mtg payments!
 
I'm sorry, but I call BS on anyone who says they do not care that the value of their home goes down or not. It doesn't matter if you plan on selling or not, it isn't worth what it once was, and your "wealth" is no longer what it once was.





As someone, who is a homeowner, and whose home has gone down 30% from the peak, it hurts, no really... it sucks. Some may say, ouch 30%, my home hasn't gone down that much. BS, it has, reality is if you want to <em>sell </em>your home and not <em>list </em>your home, this is what it will take to sell it. If you want someone to put it on the MLS, and have an agent sit around on weekends playing solitaire, then fine don't price it 30% below peak, but to sell it... that is what you need to do. So, what am I to do? Snort a line of Kool-Aid, and think it will be back to peak in 2010? Yay! Oh wait... the same peak price will not be the same when adjusted for inflation, a $1mil in 2005 will definitely not be the same in 2010.





I get a net rent check every month that covers half my mortgage (Oops... more, thanks Ben!), and using that as a way to justify a down market is silly. Seriously, the increase in rents will never make up for the losses in value, well... maybe in 2012. But, come on, these excuses are weak at best. Laughable is more like it. Thank gawd I have accepted being a stage 5er.





In the Marketplace section of the OCR today they have the properties listed by agents, and one was in Maybury Ranch in Orange. A nice big house 2850 sqft., remodeled, on a big lot 9750 sqft., that last sold in the peak of 1990 for $405k. Ouch! I remember when those homes would be tough to sell in 94-97 for more than $350k. Anyway, it is <em>listed </em>for $825k, and if miracles happen and it sells for that... then do the math on what a 6% investment will get you over the same time. If they wanted <em>sell </em>it, then the investment return with costs factored in, would be barely above inflation. There is a lesson to be learned here.





And, I have said it before, and I will say it again... If you are not making money in the stock markets, then you do not know what you are doing. You can either figure out how to use the intarwebs, or just stay away, but don't complain you can't make money in the markets. Saying this is... well... just dumb too. The S&P 500 has always beat housing in the "long term" of investing.
 
Roughly half of my equities are the S&P 500.



I think I'm bleeding more than housing is, but like the gambling degenerate I am, I'm doubling down and hoping I can martingale my butt out of this mess when the dealer stops cold decking me and I run better.
 
Two words... put options.





They can be a band aid to contain the bleeding, or they can be the surgeon reattaching the severed limb. *cough* Banks and builders have had a nice run *cough* opportunity *cough*.
 
why does everyone asume you want to sell your house ?



i don't get this, unless you sell your home you are living in the only value it has is beeing a home. if you like your home, don't need to move, don't want to move, who cares what the market would give today for your home, so yes, there are people out there who don't care how much their home is worth because they don't want to sell it.



kinda like with stocks (the other way around) a lot of people brag how much money they made on a stock, i ask them, did you sell it ? and then they say no... so you didn't make any money - or lost any unless you sell it...



so i like where i live, i don't want to neither do i need to sell and i know unlike a number in the bank, the money i have put in a home gives me exactly that... a home.



the stock market can tank, the inflation can go thru the roof, i don't care i still have a home... yes natural distasters etc... but i still own the land and have insurance...



'I get a net rent check every month that covers half my mortgage (Oops... more, thanks Ben!), and using that as a way to justify a down market is silly. Seriously, the increase in rents will never make up for the losses in value, well"



i'm not justifing any downmarket, that has nothing to do with that... and what do you know about my situation ? nothing... i don't need to justify anything. i'm just making silly conversation here and sayimg, don't put all you eggs in one basket, but if you buy a house to sell it later, don't do it. do it to live in it.
 
I have been watching the market for the last 3 years now and back then, there wasn't anything decent that we could afford. Now, in the price range we are looking at, we actually have better options. We are first time home buyers here in Southern California. We aren't looking to "flip" a house or buy a mansion. We just want a place that we can afford and call home.
 
Regardless of intent, you often need to sell. At the very least, most people sell to retire. The investment value of houses became very large, partly from a secular shift to bigger homes, and partly due to the bubble. For the price of a median OC home, you could retire to the Rust Belt or any other inexpensive area. The current swings in house prices are enormous in comparison to the savings ability of many houses.



In any case, to beat my drum, you *should* care about the investment aspect of houses. It is important, at least in an area with expensive housing. Certainly people can get away with ignoring it, including people able to commit to permanently living in one house, but you should still consider it. We should have sold our place at the peak even though we want to stay here permanently. I underestimated the drop because I had partially capitulated to the bubble mentality after years of saying "it's too high, don't buy".
 
I have one remaining property in Calif that is a rental and is positive since I own it outright. It has declined about 30% since the peak. Had I sold it at the peak and paid captial gains and recapture I would be about where it is today as far as cash. However, the net rental income exceeds current CDs in todays market and if I ever want to return to Calif I have a property on the west side of I-5 near the beach. I certainly felt better when it was "worth" more but it is still worth more than double what I paid, has good positive cash flow, and I can live there anytime I choose to. I agree that selling may not be necessary for a lot of people so the value isn't really that important. Not sour grapes but facts.



As graph showed over 20% of homes in OC have no mortgage. That is 1 out of every 5 homes you see. Yes prices have fallen and yes they will fall more but the world won't end and owning property still will have value to those who didn't buy at the peak or HELOC or refi. Some even took out their equity near the peak and locked it up and have hedged that market by having cash and remaining property. There will always be winners and losers in any market so don't write everyone off as losers.



Have a successful day!
 
xs,



Your home might not be the best investment you've ever made, but it's not cash flow negative. That makes it a good investment, although one could argue it is not the most optimal use of your equity. You do have an insurance policy in case you decide to move back to civilization against getting 'priced out'.



I think put options are for pussies - but I consider myself an investor, not a trader. If I traded I'd absolutely use them to hedge risk, but I gamble recreationally and don't feel a need to drag my closet degenerate out into my investments, and to a lesser degree, my business.
 
<p>xsocal - which age group do you think mostly owns the 20% of homes with no mortgage?</p>

<p> <img alt="" src="http://www.economist.com/images/20080119/CFN640.gif" /> </p>

<p class="MsoNormal"><a href="http://www.economist.com/finance/displaystory.cfm?story_id=10534992">http://www.economist.com/finance/displaystory.cfm?story_id=10534992</a></p>
 
Anon



I would think the majority are in the 50-75 year old range. But they purchased in their 35-45 age range. There are many ways to compound your earnings as far as buying investment property to eventually live in and having someone else, a rentor, pay it off and you move in, convert it to primary residence status, and sell it with little or no taxable event. Long range planning allows you to own several homes free for income and a home to live in if you plan and take advantage of the tax laws. This is investing not speculating.



When I see that someone is being foreclosed on who owned their home for ten years then I have no empathy for them. They should be near paying off the home. They were either very greedy or very stupid if they are in this position.



Remember that to judge renting against another investment you need to deduct the pre tax cost of rent from the after tax profit of the investment. If your rent is $2,200 per month and you are in the 40% tax bracket then you need to make $3,080.00 per month to pay your rent. If you rent for 5 years then it cost you $184,800 which needs to be deducted from the after tax net profit from your investment unless you are homeless.



I am not saying now is the time to buy but if you look long term and use tax laws to your advantage I still believe that real estate is a great way to increase your net worth and to prepare for retirement. Orange County may not be the place to invest since the prices do not make economic sense at this time although there are often good opportunities if you look hard and are ready to take advantage of circumstances.



Regards
 
<p>NoVas</p>

<p><em>"You do have an insurance policy in case you decide to move back to civilization against getting 'priced out'."</em></p>

<p>I now live in a "civilized" community. LOL</p>

<p>I came close to selling that property in June of 2005 (near market peak) by using a 1031 Exchange and buying 2 duplexes which would have more than doubled my cash flow considering lack of HOA dues and cost of out of state duplexes. </p>

<p>I elected not to for that exact reason that it would be very hard to replace property west of I-5 in south OC for less than my 1999 cost basis. Cost of duplexes have come down about 20% so I could still make the change and increase cash flow and have a lower cost basis in the new property. But my belief is that long term the value of beach close property in south OC will recover. It is a great rental area and 1 tenant is 25% of the hassel of 4</p>

<p>Regards</p>

<p> </p>

<p>


</p>
 
I have rented and I have owned and felt the pain of both.



When folks bring up comparison charts though I cant help but feel that we are comparing apples and oranges. With the exception of single family homes turned rentals a lot of the rental properties today that I see in the SoCal area are those charming mass units.



They have 4 walls and a roof, and may even have roughly the right numer of rooms for a comparison but how do you compare the joys of the nastier aspects of renting? From bad built in applainces, cheap paint, and the fun of listening to your neighbors through a shared wall. Also like it or not the attitude of the occupents is different as well. Renters tend to be more comfortable in just getting by leading to all kinds of nasty stuff for other folks to look at, smell, or hear. Homeowners (usually goverened by an association) take a bit more pride in ownership and you end up in a better quality neighborhood.



Its like comparing a beat up used car to something new. They both will function but there is a quality aspect that is overlooked.



I wonder if anyone has data on this ... ?



Calculators like;



http://www.nytimes.com/2007/04/10/business/2007_BUYRENT_GRAPHIC.html?_r=1&oref=slogin



just do not have a slide bar for "your neighbor drunkenly set your car on fire and hasnt bothered to clean his place in years leading to a smell that can only be described as DEEP FUNK on a hot summer day and the priviledge for complianing to the landlord was a rent increase" ... (by that was the breaking point for me to leave the Corte Bella appartments in Fountian Valley and move into Irvine).
 
<p>When I talk rental equivlents I'm talking like properties (SFR in the same neighborhood/streets, condos vs apts in comperable condition).</p>
 
IMO there's nothing wrong with investing in real estate, but you need to know the difference between an investment property versus a home. They need to be treated differently, but too many people mix them up.





A home should be somewhere that you enjoy living in. You should feel good living there with lots of positive energy. When you're tired from a day's work, you look forward to returning to the comforts of home. It doesn't matter if the house isn't profitable, because the maintenance of your home is really in the expense column. You might make some $ when you sell later, but then you'd have to find a new home. You should also try to pay off your home sooner. If you cannot afford to buy, rent.





A house that hate or don't care for, is not a home. It's a roof with a bed and toilet. I made the mistake of staying in such a place for 4 years, and developed several chronic health problems as the result. It might not be scientific, but there's probably a good reason why you feel "bad vibes" and should leave.





An investment property, is something that you buy based on the numbers. It doesn't matter if you won't enjoy living there or will never pay off the loan, as long as you can find paying tenants and make a buck. An investment property doesn't even have to be in California. i.e. my coworker sitting next to me owns 4 properties in England, Spain, and California.





Should you invest in real estate? I believe in diversification, and real estate should make up one part of your portfolio. I like a well-balanced set of investments in RE, mutual funds, cash reserve in money market/CD's, plus a little in foreign currency, gold/silver, and stocks (if you enjoy trading). If you think the US government and the dollar might collapse, then you could stockpile some nails, hand tools, and muzzle loading rifles in your garage for bartering in the post-apocalyptic world of... Mad Max or The Postman.
 
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