What the bubble?!?

[qwerty]

the problem with looking at a home as an investment is that if you bought a home in say 2000 and in 2006 it had doubled, sold in 2006 to lock in the profits, if you bought another house in 2006 you are no better off than you were before. cause now you are buying another house that increased just as much as yours did (assuming you stay in the same area as most (not all) people will likely not leave the area they currently live in).  i guess you could have sold in 2006 and rented and bought again in 2009/2010, but lets be honest, if you did that it was just dumb luck. few if any could time the market to sell at its highest and buy at the lowest point.

"Chance favors the prepared mind." - Louis Pasteur

Put me in the dumb luck group. Bought in 2000. Sold for double in 2007. Rented until last year and bought right before the big run-up.

did you know there was going to be a big run up? chance may favor the prepared mind but unfortunately your mind wasnt prepared to buy at the bottom (whenever that was 2008-2010?)

when my wife and i moved to irvine in 2007 she wanted to buy, i said no that prices were going to fall. rented until last year and bought in the summer time before the big run up. i was smart enough not to buy in 2007 but can i honestly say that i bought last year knowing this run up was going to happen? Nope. dumb luck.

 

[qwerty]

You may not believe me but We did sell in 2005. Many, including my wife, thought I was insane.  We rented till last year and then bought in our dream neighborhood for substantially less. We had augmented our funds with investments from our stock portfolios over those same years. I did that, bolstered from our good friends here and IHB.  Luck?  maybe, but it worked for us.

i believe you, and im sure there are others (vinster). but like i mentioned to vinster 2012 wasnt the bottom, it was a good time to buy, but not the bottom. if you were able to know when the bottom was you would have bought in 2008-2009 or whenever the bottom was. that is why generally speaking i think its dumb luck. without question both of you still bought at a good time though.

 

[Vinster]

"Chance favors the prepared mind." - Louis Pasteur

Put me in the dumb luck group. Bought in 2000. Sold for double in 2007. Rented until last year and bought right before the big run-up.

did you know there was going to be a big run up? chance may favor the prepared mind but unfortunately your mind wasnt prepared to buy at the bottom (whenever that was 2008-2010?)

when my wife and i moved to irvine in 2007 she wanted to buy, i said no that prices were going to fall. rented until last year and bought in the summer time before the big run up. i was smart enough not to buy in 2007 but can i honestly say that i bought last year knowing this run up was going to happen? Nope. dumb luck.

Like I said it was dumb luck. The reason I bought was because it was cheaper to buy than rent. I was paying $3000+ to rent a home in Irvine. My net cost now is that same amount for a nicer house. There's no way I foresaw the big run-up.

 

[Vinster]

i believe you, and im sure there are others (vinster). but like i mentioned to vinster 2012 wasnt the bottom, it was a good time to buy, but not the bottom. if you were able to know when the bottom was you would have bought in 2008-2009 or whenever the bottom was. that is why generally speaking i think its dumb luck. without question both of you still bought at a good time though.

Actually, the price I paid for my house last year is about what the same model in the neighborhood was going for in 2008-2009. So I paid a bottom dollar price.

However, looking back, it would have been better to buy in 2008-2009 so that I wouldn't have had to live in a rental for so long. But I remember being so scared back then as to whether it was the bottom or not!

 

[FranchisePlr]

Right now, for example, it costs $3,200 to rent in Siena in Laguna Altura but the mortgage payment for 20% down on $670,000 at 4.5%, 30 year fixed, with $295 HOA + Mellos = $4,002 a month.

Tax deduction is $1,006 per month at 35% tax bracket = $2,996 a month ain't too shabby to live in Laguna Altura to purchase.

 

[morekaos]

You may not believe me but We did sell in 2005. Many, including my wife, thought I was insane.  We rented till last year and then bought in our dream neighborhood for substantially less. We had augmented our funds with investments from our stock portfolios over those same years. I did that, bolstered from our good friends here and IHB.  Luck?  maybe, but it worked for us.

i believe you, and im sure there are others (vinster). but like i mentioned to vinster 2012 wasnt the bottom, it was a good time to buy, but not the bottom. if you were able to know when the bottom was you would have bought in 2008-2009 or whenever the bottom was. that is why generally speaking i think its dumb luck. without question both of you still bought at a good time though.

That is true but We wanted to live in a very specific area (an Island to be exact).  We did end up buying a house on a street with only 20 homes on it, at the lowest price paid on that street, in over 12 years (that's 2001).  Prices may have bottomed in 2008 but there were few homes we could have bought at that time on that Island.  Supply was a big issue.  I agree I probably didn't hit the exact bottom but many times price, to me is like horse shoes, hand grenades and slow dancing...close is good enough

 

[irvinehomeowner]

morekaos is one of The Others?

 

[paperboyNC]

I moved to Southern California in 2006. Many of my friends told me I should buy a condo and I told them they were crazy - they were overpriced.

2006:
Rent: $1250/mo for a 2bd/2ba condo

Sale Price: $375K. Interest rates 6%. HOA: $250/mo. Property Tax: 1.1%. Total monthly expense with a 30yr fixed mortage for 80% and a piggyback loan of 20%:

Total monthly expense: $2848

Obviously it would have been crazy to buy.

I bought in Irvine in 2012:

2012:
Rent for a 4bd/3ba: $3200/mo

Sales Price: $560K at 3% interest with $250 HOA and $800/mo property tax/mello roos:

$3411/mo

Once you throw in tax benefits and the lower monthly payment with a down payment and the fact that you pay off some of that towards your mortgage every month, I decided that even if prices remained flat I'd make money if I stayed in the home at least 5 years. Plus it was in better condition (brand-new) than many rentals.

While a lot of posters are correct that the bottom was earlier than 2012, for me the bottom really was 2012 because:

- Interest rates fell to 3% in 2012!! It made a slightly more expensive home a lot more affordable.

 

[paperboyNC]

Right now, for example, it costs $3,200 to rent in Siena in Laguna Altura but the mortgage payment for 20% down on $670,000 at 4.5%, 30 year fixed, with $295 HOA + Mellos = $4,002 a month.

Tax deduction is $1,006 per month at 35% tax bracket = $2,996 a month ain't too shabby to live in Laguna Altura to purchase.

A) Since you normally take a standard deduction of $12,400 your tax savings are not as high as you calculated as the standard deduction already saves you $350/mo.

B) You have to include the lost gains on your down payment. $134,000 @ 5% returns = $558/mo.

Right now buying is a lot more expensive than renting in Irvine. It was cheaper 18 mos ago.

 

[irvinehomeowner]

@paperboy:

So where did you get the down payment for the 2012 purchase?

Your scenario is a bit skewed because you are using 0% down on the 2006 purchase vs. renting. And there is also the scenario of being able to sell that $375k condo now for more.

 

[FranchisePlr]

Right now, for example, it costs $3,200 to rent in Siena in Laguna Altura but the mortgage payment for 20% down on $670,000 at 4.5%, 30 year fixed, with $295 HOA + Mellos = $4,002 a month.

Tax deduction is $1,006 per month at 35% tax bracket = $2,996 a month ain't too shabby to live in Laguna Altura to purchase.

A) Since you normally take a standard deduction of $12,400 your tax savings are not as high as you calculated as the standard deduction already saves you $350/mo.

B) You have to include the lost gains on your down payment. $134,000 @ 5% returns = $558/mo.

Right now buying is a lot more expensive than renting in Irvine. It was cheaper 18 mos ago.

'

You have to figure in that you are paying down the principal an average of $943.15 back to you in the first 5 years.  It is a lot closer than you think, if you even add in 2-3% appreciation in Irvine.

Total Rent in Siena over 5 years with *only 1% increase in rent: $195,879
Total Rent(Mtg) in Siena buying over 5 years: $232,499

Average Tax Savings from Interest: $982 per month in that span = $58,927 over 5 years

Now total Rent(Mtg) over 5 years minus tax savings = $173,572

Principal Mortgage Balance is now lower to $493,994.

No appreciation, you would still be up $22,307...
If property only appreicated 2% per year = Total Profit would be $83,236
Appreicated over 3% = Profits would be $123,768.

Owning still makes some sense, even in this market.  I believe buying a new build has some advantage after build out and can still rise 5% in this market after move in.  Especially in Irvine.  Priority lists are still high, not as high as July but still good enough to move the needle upward each phase release in good areas...

 

[Irvinecommuter]

Something that has not been mentioned is that mortgages allow you to access credit from the bank at a relatively low rate over 30 years.  You put down 15-20% and the bank funds the rest.  So you can take $100K and buy a $500K house.  Not really an investment strategy but it does allow you to stretch your payments out over 30 years.  With interest rates in the 4s, the cost of that borrowing is almost non-existent with inflation factored in.

You can do the same with margin borrowing for stock but that's super risky and if you have a bad month, you need to come up with a lot of cash fast.

 

[Irvinecommuter]

Houses are a consumable asset. Unlike other assets, they come with quazi-mandatory cash outflows. Taxes, maintenance, insurance, utilities, etc.  They also replace another quazi-mandatory expense, rent.  They're further complicated by typical extraordinarily high leverage rates 4:1.

As an investment, homes have historically, been an inflation hedge and not much more, even in growth areas where appreciation over the long term runs 0.5-1.0% over inflation.

Stocks over the same terms run closer to inflation plus 5-8%.

As I stated earlier..the easier subject to grasp is a car.  99% of cars depreciate significantly yet all of us own cars because they serve a non-monetary purpose.  You can "rent" a car by leasing but there are non-economic factors why owning a car is better than renting a car. 

A house is even more valuable because each house is somewhat unique.  You can always buy/lease the same car but you can't necessary buy or rent the same house.

This is a ridiculous comparison.  A car company (or the industry) can always produce more vehicles.  Unless you count on a volcanic island, there will never be any more land produced. 


You most definitely can rent the same house.  Every week realtors drop off their little "neighborhood snapshots".  It covers what was sold and what has been leased in our neighborhood..  Since these are tract homes, they are fairly homogenous.  We are not talking custom homes on sites that have natural features - we are talking cookie cutter irvine homes on a 4500 sq. ft fenced in yard of dirt.


In their monthly report, i can see that homes with the same floor plan as mine are renting for $5500 / month.

The comparison is as to the non-monetary benefits of particular purchases.  Cars are terrible investments but provide vital non-monetary benefits.

It's not the same house...every house is slightly different.

 

[qwerty]

Right now, for example, it costs $3,200 to rent in Siena in Laguna Altura but the mortgage payment for 20% down on $670,000 at 4.5%, 30 year fixed, with $295 HOA + Mellos = $4,002 a month.

Tax deduction is $1,006 per month at 35% tax bracket = $2,996 a month ain't too shabby to live in Laguna Altura to purchase.

A) Since you normally take a standard deduction of $12,400 your tax savings are not as high as you calculated as the standard deduction already saves you $350/mo.

B) You have to include the lost gains on your down payment. $134,000 @ 5% returns = $558/mo.

Right now buying is a lot more expensive than renting in Irvine. It was cheaper 18 mos ago.

for a lot of people here that itemize, the CA state income tax probably exceeds the standard deduction so therefore when you itemize your mortgage you do get the full benefit.

 

[paperboyNC]

@paperboy:

So where did you get the down payment for the 2012 purchase?

Your scenario is a bit skewed because you are using 0% down on the 2006 purchase vs. renting. And there is also the scenario of being able to sell that $375k condo now for more.

I sold stocks (mutual funds) for most of it. I saved it up over the years by spending less than I made and putting extra money (like bonuses) aside and investing in the market at the right time.

A) Skewed with 0% down? My landlord put 0% down and if you put a downpayment you need to include the amount that capital would earn elsewhere so 0% down is actually the best way to evaluate buying vs renting.

B) The next sale on that condo was $105K after every single condo in the entire complex went into foreclosure (It was a condo conversion project in a so-so neighborhood).

 

[bones]

.

 

[FranchisePlr]

Jumbo pricing now, above $625,500 is actually better than conforming with most banks with really good credit, reserves and 740+ FICO.

2.75%, 5 year fixed
4.00%, 30 year fixed

All at zero pts discount with $1,500 lender fees.

 

[nosuchreality]

Whole lot of analysis paralysis going on here.

You will get whatever answer you subconsciously want because your assumptions determine the outcome.

 

[bones]

[quo.

 

[irvinehomeowner]

I used to track these Woodbury Portisol homes quite a bit because they were in the low $700ks a few years ago.

Looks like they won't get there anymore:
http://www.redfin.com/CA/Irvine/61-Rising-Sun-92620/home/5958958

This actually sold during the bubble for $825k, now listed at $939k.