Why do people want houses to appreciate in value when they own?

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25w100k+_IHB

25w100k+_IHB

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Ok I've been here for a while but haven't figured it out completely.... assuming that renting isn't an option, or that with the tax benefits, you save more money owning vs renting....why does anyone want real estate to appreciate?



Since RE is a leveraged move... if my small condo appreciates 10% but the move-up house I want appreciates 10%, I'm much worse off then if things had gone down 10%.



Right? Am I missing something fundamental? Even if I lose my downpayment, if in 5 years the bigger place I wanted to buy is 10% cheaper, I'm better off!
 
[quote author="25w100k+" date=1218001205]Ok I've been here for a while but haven't figured it out completely.... assuming that renting isn't an option, or that with the tax benefits, you save more money owning vs renting....why does anyone want real estate to appreciate?



Since RE is a leveraged move... if my small condo appreciates 10% but the move-up house I want appreciates 10%, I'm much worse off then if things had gone down 10%.



Right? Am I missing something fundamental? Even if I lose my downpayment, if in 5 years the bigger place I wanted to buy is 10% cheaper, I'm better off!</blockquote>


How can you afford the cheaper move-up house if your equity is gone?
 
Well, I'm assuming people are also saving money and building up their next down payment fund....



Obviously if someone is in their 'longterm' house I see why they'd not want their equity to depreciate...but for move up buyers i'm still confused.
 
[quote author="25w100k+" date=1218001205]Ok I've been here for a while but haven't figured it out completely.... assuming that renting isn't an option, or that with the tax benefits, you save more money owning vs renting....why does anyone want real estate to appreciate?



Since RE is a leveraged move... if my small condo appreciates 10% but the move-up house I want appreciates 10%, I'm much worse off then if things had gone down 10%.



Right? Am I missing something fundamental? Even if I lose my downpayment, if in 5 years the bigger place I wanted to buy is 10% cheaper, I'm better off!</blockquote>


Yes, the bigger house in your theory would cost less than the purchase price of your current condo. In the meantime how can you afford to buy the cheaper bigger house when you are stuck with your expensive condo? Your 20% down payment for the cheaper bigger house has to come from the equity of your expensive condo. Since your condo depreciated and is worth much less than the price you paid you have no appreciated equity as well as the evaporation of your condo down payment.
 
I agree its partly a vanity thing. People like to think and hear how smart they were for buying back in .... year for so much less. I think we've all heard people say "I couldn't even afford my own house today" with a chuckle.



If they are planning to live there forever the value of the house rising would actually hurt them b/c they'd still pay incrementally more property taxes even with prop. 13 in place. But apparently that is a small price to pay for the bragging rights of living in a 500k, 1M, etc. house.
 
25w100k+,

You are not missing anything. Falling prices are good for everybody who expects to be a net buyer of housing over the course of the rest of their lives, which includes most renters and current owners. Falling prices are bad mainly only for those who plan to downsize or sell and rent in the near future. That's why it pisses me off to no end to hear everyone in the mainstream media about the "crisis" of falling home prices. Oh well.



Ipop, bkshopr,

I think the down payment is a sunk cost.



Say you buy a 500K condo and want to move up to a 1M SFR (to use nice round numbers) in a few years. You put 20% down. Now say prices decline 20%. Your downpayment is gonzo, but you still have a 400K condo, and the SFR is 800K. You sell the condo free and clear and now have an 800K mortgage. But what if prices go up 20%? Well, the condo is now 600K and the SFR is 1.2M. You clear 200K from the condo sale. Then you apply that to the new SFR and you now have a 1M mortgage. 800K < 1M.



As far as I can tell the same scenerio plays out with the same result whether the down payment is big or small, and whether the price changes are big or small. If you are a move up buyer, it's a no-brainer that you should want prices to decline.
 
[quote author="bigmoneysalsa" date=1218017536]25w100k+,

You are not missing anything. Falling prices are good for everybody who expects to be a net buyer of housing over the course of the rest of their lives, which includes most renters and current owners. Falling prices are bad mainly only for those who plan to downsize or sell and rent in the near future. That's why it pisses me off to no end to hear everyone in the mainstream media about the "crisis" of falling home prices. Oh well.



Ipop, bkshopr,

I think the down payment is a sunk cost.



Say you buy a 500K condo and want to move up to a 1M SFR (to use nice round numbers) in a few years. You put 20% down. Now say prices decline 20%. Your downpayment is gonzo, but you still have a 400K condo, and the SFR is 800K. You sell the condo free and clear and now have an 800K mortgage. But what if prices go up 20%? Well, the condo is now 600K and the SFR is 1.2M. You clear 200K from the condo sale. Then you apply that to the new SFR and you now have a 1M mortgage. 800K < 1M.



As far as I can tell the same scenerio plays out with the same result whether the down payment is big or small, and whether the price changes are big or small. If you are a move up buyer, it's a no-brainer that you should want prices to decline.</blockquote>


Good explanation. However in real life in the scenario of 20% decline the condo seller would not be able to come up with $160,000 down payment for the $800,000 house. In the 20% appreciation scenario he got most of the down payment $200,000 toward the purchase of a $1.2 mil home.
 
[quote author="bkshopr" date=1218019123][quote author="bigmoneysalsa" date=1218017536]25w100k+,

You are not missing anything. Falling prices are good for everybody who expects to be a net buyer of housing over the course of the rest of their lives, which includes most renters and current owners. Falling prices are bad mainly only for those who plan to downsize or sell and rent in the near future. That's why it pisses me off to no end to hear everyone in the mainstream media about the "crisis" of falling home prices. Oh well.



Ipop, bkshopr,

I think the down payment is a sunk cost.



Say you buy a 500K condo and want to move up to a 1M SFR (to use nice round numbers) in a few years. You put 20% down. Now say prices decline 20%. Your downpayment is gonzo, but you still have a 400K condo, and the SFR is 800K. You sell the condo free and clear and now have an 800K mortgage. But what if prices go up 20%? Well, the condo is now 600K and the SFR is 1.2M. You clear 200K from the condo sale. Then you apply that to the new SFR and you now have a 1M mortgage. 800K < 1M.



As far as I can tell the same scenerio plays out with the same result whether the down payment is big or small, and whether the price changes are big or small. If you are a move up buyer, it's a no-brainer that you should want prices to decline.</blockquote>


Good explanation. However in real life in the scenario of 20% decline the condo seller would not be able to come up with $160,000 down payment for the $800,000 house. In the 20% appreciation scenario he got most of the down payment $200,000 toward the purchase of a $1.2 mil home.</blockquote> *scratches head* but he still has a higher payment.....
 
Chuck meet Ponzi :)



The trading up "Scenario" is OVER...at least for the next decade. That's why the $800k town home owners in Woodbury, Northpark etc can't find any takers..



It's like the Lion King...the Circle of Life :D
 
[quote author="25w100k+" date=1218026095][quote author="bkshopr" date=1218019123][quote author="bigmoneysalsa" date=1218017536]25w100k+,

You are not missing anything. Falling prices are good for everybody who expects to be a net buyer of housing over the course of the rest of their lives, which includes most renters and current owners. Falling prices are bad mainly only for those who plan to downsize or sell and rent in the near future. That's why it pisses me off to no end to hear everyone in the mainstream media about the "crisis" of falling home prices. Oh well.



Ipop, bkshopr,

I think the down payment is a sunk cost.



Say you buy a 500K condo and want to move up to a 1M SFR (to use nice round numbers) in a few years. You put 20% down. Now say prices decline 20%. Your downpayment is gonzo, but you still have a 400K condo, and the SFR is 800K. You sell the condo free and clear and now have an 800K mortgage. But what if prices go up 20%? Well, the condo is now 600K and the SFR is 1.2M. You clear 200K from the condo sale. Then you apply that to the new SFR and you now have a 1M mortgage. 800K < 1M.



As far as I can tell the same scenerio plays out with the same result whether the down payment is big or small, and whether the price changes are big or small. If you are a move up buyer, it's a no-brainer that you should want prices to decline.</blockquote>


Good explanation. However in real life in the scenario of 20% decline the condo seller would not be able to come up with $160,000 down payment for the $800,000 house. In the 20% appreciation scenario he got most of the down payment $200,000 toward the purchase of a $1.2 mil home.</blockquote> *scratches head* but he still has a higher payment.....</blockquote>


Precisely the point. There is a huge penalty to pay if you do not have cash. The same works for credit card company issuing credit to applicant with bad or no credit the interest rate is 18% and higher.



The $800,000 scenario is happening everyday now. Want to be home shoppers have no down payment and this is the reason why the sale activities are at a all time low The 1.2 million scenario was the reason why this blog started. The condo owner with his $200,000 was short $40,000 in meeting the 20% down for the $1.2 mil home but his head got too big. He went ahead anyway and bought the home borrowing from New Century.



That house is worth $800,000 now and he still owes $1mil. His variable loan is reset about now and he wants to refinance to a fixed rate product. No bank would loan him money because his mortgage is upside down. He could default like most of his friends or keep his good credit standing by making the payment that he did not anticipate for.
 
So to answer JUST your question for JUST the situation you're describing, you can think of it this way.

If you lose JUST the down payment and the home prices do not decline any further,

Bought at 500K, down 100K, current price and mortgage is 400K.



Let's say you were able to sell for 400K, you have 0 + whatever money you saved for the new DOWN (let's say 100K).



YES, you are better off with the SFR being at 800K than 1mil plainly put,

But you have to consider interest rates in an up market versus a down market,

and what the above are saying about being able to add more to the down payment

to make the mortgage mangeable.



BOUGHT AT

----------------

Condo=500K

SFR=1 mil



DOWN SCENARIO

--------------------

Condo=400K

SFR=800K
 
Saving money for most is not easy. Average family setting aside $2,000 per month meant giving up on a lot of things. To save that $100,000 of down payment for an $500,000 entry home takes 50 months (6 years). By that time this family would be priced out again. This saving for down payment should have started 3-4 years ago to take advantage of the current market now. It is already too late if you are thinking about saving up now to buy that bargain house.



Ipo may have saved some money but he does not have enough to buy his move-up house. The equity from the home he sold plus what he saved would place him at a better leverage for negotiation with the seller since he is financially solid for loan approval.
 
[quote author="Astute Observer" date=1218076106]My brother-in-law's family save between $5k-$10k per months. They have two incomes, and do not indulge in some of the "necessities" like most people do. I think they will get two of the houses fully paid off before they are 40 yrs old. :envy:



It is very difficult for most American to save more than 2 grands per months unless they are making very good money. With good paying job, people tends to enjoy their life more with wine/vacation/spa etc. A lot of good savers are not good with investiment, and often fall victim to inflation. To come up with good chunk of down payment is hard work.</blockquote>


AO,



Is your brother in law's family Chinese? This amount of saving requires extreme frugality and bargain seekings. Chinese and Indian (dot but not feather) are the primary groups from my research who could subject themselves and their family to not having the luxuries like Jonese next door.
 
wtf? How doyou know it takes effort? Maybe they net 40k a month. The last two posts were absoltuely useless unless we know their income.
 
I'm a classical collector and there are some extreme ways of saving to support my habit...this is from a old usenet thread on this subject.



>I need some help (don't we all?). I am having a difficult time convincing

>my girlfriend that I am a paradigm of restraint in owning only 4700 CDs

>(approx. 3700 of classical music). All I really need to "prove" my case is

>to point to the truly insane numbers of LPs/CDs owned by many members of

>this ng. So please, help me out with my sweetheart and let me know how many

>LPs/CDs you own, provided that the number is substantially in excess of

>4700.

>

>

>

=================================================================================

"Ward Hardman" wrote in message

> How many days did it take you to reach this point?

==================================================================================



Of sanity or insanity? Unfortunately, I have acquired more than 3/4 of the

CDs in the last five years or so. But who's counting (other than my

girlfriend)? We'll skip the discussion of how to sneak the CDs into the

house without notice by one's partner (other than to say that she *did*

notice when I tried to sneak in a 200 pound amp).



==================================================================================



Counting LP's, CD's, cassettes, '78's, '45's, etc. I probably have about 1500

more items than you. However, I only started building this, my third separate

collection, in 1988 after my third divorce.



It seems to me there are four things relevant to spousal happiness on this

subject:



#1 You have to recognize that collecting music (or books, I and many other

record collectors do both) is a hobby like any other, it just takes up more

space than stamps or coins. But also hobbies that can be all consuming for

most people must be pushed into the background under most matrimonial/parental

scenarios. But THE TRUE Classical collectors are not ' most people'.



#2 Expenditures will have to be modified to meet family needs. You must convince

the family must like dog biscuits and not like soap. This means

essentially almost zero $$$ for life at certain periods of the future. This

is not hard to do however. First, what you do is spend the time you aren't

hunting to organize your holdings. Second, instead of spending $200 a week at

Albertson's you spend $20 at a local flea market, buy 12 torn badgs of dog biscuits,

wash, clean, eat, etc. Just as fulfilling as the other route.



#3 Further recognition is that you will in the future be listening to music a

lot less as time goes on. For many many years I have done 99% of my listening

while awake: you can do it at home by ignoring a spouse and/or small kids

(well, maybe you can give them 30 minutes here or there once a week.)



#4 Final problem will be space. Don't be surprised if you end up converting a

shed, an attic, a basement or a closet for your family to move into.



The number of CD's or whatever you have is not a problem. The problems are:

where is the family going to be put (somewhere out of the way, probably), how much

time will you have to spend time with them or listen to them (probably much less than

now), how much will you be able to spend on them (probably not much).



As long as your wife is willing to make these sacrifices you will

be happy and so will any other significant others you may produce. And I would

advise anyone capable of making these sacrifices to do so. Makes for better

listening later on. :-)



Just say: "Yes, dear, I do have 4,700 CD's. But that's because there were 4,700

days before I met you." That way she will know that you consider a human being

more important than a CD, and she won't ask you to throw them out.





==========================================================================================





3.I have something between 16.000 to 18.000 LP's and CD's. I don't consider

myself a paradigm of constraint and I'm quite willing to admit it's an

adiction. But a benign one. It's safer and better to your health than an

addiction to heroin, cocaine or crack, and in the long term even cheaper.

Besides, I'm not a real junk. For instance, although there were sales in the

department store I visited today I only bought one CD (if a twofer counts

for one).



==========================================================================================



4.Philip F. Walsh" wrote:



> I need some help (don't we all?). I am having a difficult time convincing

> my girlfriend that I am a paradigm of restraint in owning only 4700 CDs

> (approx. 3700 of classical music). All I really need to "prove" my case is

> to point to the truly insane numbers of LPs/CDs owned by many members of

> this ng. So please, help me out with my sweetheart and let me know how many

> LPs/CDs you own, provided that the number is substantially in excess of

> 4700.



=========================================================================================



With about 15.000 items I consider myself rather modest compared to some.



Philip

=========================================================================================

6.>"Philip F. Walsh" wrote:

>With about 15.000 items I consider myself rather modest compared to some.

>

>Philip

>

>

Some what? Record company storage facilities? National libraries?



John Harkness



============================================================================================



7.> >

> Some what? Record company storage facilities? National libraries?

>

> John Harkness



You missed the decimal point. He only has 15 items.



--

Brian Cantin

An advocate of poisonous individualism.

To reply via email, replace "dcantin" with "bcantin".



===========================================================================================

8.>

>You missed the decimal point. He only has 15 items.



I think the *committee* needs to investigate any subscriber to RMCR

who has only 15 items. Obviously there is something seriously wrong

with his collecting addiction and may be grounds for dismissal.



John
 
[quote author="25w100k+" date=1218081675]wtf? How doyou know it takes effort? Maybe they net 40k a month. The last two posts were absoltuely useless unless we know their income.</blockquote>


Ok AO,



How much do you think your brother inlaw makes?



A lot of people make a lot of money and they could not save much money at all. They do not have the down payment for a home. They sure drive the nice car and have all the materialistic gadgets. They are the one driving a Mercede making a turn into an IAC.



Saving takes discipline regardless of income. My sister works at a sweatshop and she saved enough for a house and also put her 4 kids through college with PhDs and masters.



People who can't save blame it on not making good salary.
 
I want the value to go up so I can become rich just like Gary Watts said I would. Don't you know that everyone who is a homeowner is rich and renters are poor. Just keep renting DOPES!
 
This doesn't make any sense...If prices are expected to drop, why would you ever buy a house? at some point, would you pay me to own a home?



Also, keep in ind homes (under normal circumstances) are tied to salary, falling home price means falling wages, so you wouldn't be better off.



Finally, people want houses to go up in value to give them money at retirement when it is time to retire.



And for you, you want homes to go up in value to be able to move-up:



$1M home, with 20% down increases by 20%, you now have $400k, which is enough down for a $2M home (which was about $1.67M when you bought your first home).
 
[quote author="Roo" date=1218110160]This doesn't make any sense...If prices are expected to drop, why would you ever buy a house? at

And for you, you want homes to go up in value to be able to move-up:



$1M home, with 20% down increases by 20%, you now have $400k, which is enough down for a $2M home (which was about $1.67M when you bought your first home).</blockquote>


That's the point... this is a bad thing... the old house went up $200K while the new house went up $330K ... so he's net $130K down. Paying off that new mortgage is further than it would have been if there was no appreciation.
 
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