When is the best time to buy??????????

[bigmoneysalsa_IHB]

Here is my view: Prices (as adjusted for financing) may still drop an additional 5-10% (from previous highs). However, the next 12-24 months could just as easily stay flat or bounce back 5-10%. Given this uncertainty if you're prepared and your budget is solid then it's ok to buy anytime within the next 18 months. There will a lot of people trying to time this market and not everyone will be right.

I call shenanigans on anyone who says you can’t time the market or that it’s not worth the trouble. Lots of people looked at the evidence and decided that prices were going to fall. Anyone who was thinking of buying a SFR in OC 2 years ago and didn’t has probably already saved a few years worth of take home pay for a typical OC household.

 

[no_vaseline_IHB]

Here is my view: Prices (as adjusted for financing) may still drop an additional 5-10% (from previous highs). However, the next 12-24 months could just as easily stay flat or bounce back 5-10%. Given this uncertainty if you're prepared and your budget is solid then it's ok to buy anytime within the next 18 months. There will a lot of people trying to time this market and not everyone will be right.

I call shenanigans on anyone who says you can’t time the market or that it’s not worth the trouble. Lots of people looked at the evidence and decided that prices were going to fall. Anyone who was thinking of buying a SFR in OC 2 years ago and didn’t has probably already saved a few years worth of take home pay for a typical OC household.

Let me pile on while the piling is good.........

Less than a week ago, JP Morgan stated their standard case was 44% decline peak to trough, and their worst case was 58%. The standard case needed 7% unemployment; the worst case needed 8%.

Cliffs Notes from Calculated Risk

Full cite from JPM's takeover of WaMu.

We are currently at 7.7% unemployment, a scant 0.3 away from the "worst case".

http://wwwedd.cahwnet.gov/About_EDD/pdf/urate200809.pdf

Rents might be the P/E ratio of real estate values, but they certainly have very little to do with how much a bank will lend (which sets your upper limit on what you can pay) and that brings me back to what does $375K get you? Not much outside of the 909. However, if the JPM worst case is good (and nobody has overshot the downside yet) that puts a bunch of formerly million dollar Irvine SFR's at $420K - and you can do that payment on the Irvine median income.

How do those fools in that toxic waste dump Villages of Columbus who bought at the peak feel now? How will they feel at forty two cents on the dollar? Would you miss six hundred dimes much?

 

[no_vaseline_IHB]

And just in time, Irvine Renter makes my base case that the hard cap on prices is the financing.

http://www.irvinehousingblog.com/blog/comments/desire-is-not-demand/#comments

 

[flmgrip_IHB]

Here is my view: Prices (as adjusted for financing) may still drop an additional 5-10% (from previous highs). However, the next 12-24 months could just as easily stay flat or bounce back 5-10%. Given this uncertainty if you're prepared and your budget is solid then it's ok to buy anytime within the next 18 months. There will a lot of people trying to time this market and not everyone will be right.

I call shenanigans on anyone who says you can’t time the market or that it’s not worth the trouble. Lots of people looked at the evidence and decided that prices were going to fall. Anyone who was thinking of buying a SFR in OC 2 years ago and didn’t has probably already saved a few years worth of take home pay for a typical OC household.

Let me pile on while the piling is good.........

Less than a week ago, JP Morgan stated their standard case was 44% decline peak to trough, and their worst case was 58%. The standard case needed 7% unemployment; the worst case needed 8%.

Cliffs Notes from Calculated Risk

Full cite from JPM's takeover of WaMu.

We are currently at 7.7% unemployment, a scant 0.3 away from the "worst case".

http://wwwedd.cahwnet.gov/About_EDD/pdf/urate200809.pdf

Rents might be the P/E ratio of real estate values, but they certainly have very little to do with how much a bank will lend (which sets your upper limit on what you can pay) and that brings me back to what does $375K get you? Not much outside of the 909. However, if the JPM worst case is good (and nobody has overshot the downside yet) that puts a bunch of formerly million dollar Irvine SFR's at $420K - and you can do that payment on the Irvine median income.

How do those fools in that toxic waste dump Villages of Columbus who bought at the peak feel now? How will they feel at forty two cents on the dollar? Would you miss six hundred dimes much?

how about those guys who bought next to the 133, the el toro air base, the pesticide infested former orange fields, the big mountain of waste, the trailer park next door, the major "highways" irvine jeffrey & sand canyon ? prices have dropped equally no matter where you look...

i'm still trying to figure out why you trash talk VoC for no reason... did you buy there and you are upside down now ? did you buy a McMansion in WB and now it's worth half ? or are you living next door in the trailer park ?

you have just blant statements not backed by any evidence... but that's the beauty of online forums, everyone can be an expert...

 

[flmgrip_IHB]

columbussquare, you have a lot of good points (regardless of what location or property you are talking about). you however will hit deaf ears around here. it's essentially a lost case. you will be shown graphs and other studies... most around here just look at the per sqft price, that's it.

for some it might work out right now to buy (for the reasons and points you made) for some it won't. some like to be able to move in a heart beat (go rent by all means), some just like to rent that's fine...

IMO homeownership should never be looked at as an investment, in the long run you might get the same return than a CD, but there is other benefits to it (as you mentioned)

the property i bought a long time ago (and is rented out right now) would have probably performed better in the stock market (even though it's 3x times worth than what i paid for right now) but i see it as diversifying my portfolio. but when i bought it and even now i don't look at it as an investment...

 

[no_vaseline_IHB]

how about those guys who bought next to the 133, the el toro air base, the pesticide infested former orange fields, the big mountain of waste, the trailer park next door, the major "highways" irvine jeffrey & sand canyon ? prices have dropped equally no matter where you look...

That's not true. They use hardly any pesticides on oranges. They are one of the few crops you can grow organically via IPM. Also, prices have NOT dropped equally. Lets get back to your submission about property taxes and AMT if you would..........

i'm still trying to figure out why you trash talk VoC for no reason...

Bitter renter obv.

did you buy there and you are upside down now ? did you buy a McMansion in WB and now it's worth half ? or are you living next door in the trailer park ?

you have just blant statements not backed by any evidence... but that's the beauty of online forums, everyone can be an expert...

I think the project at Villages of Columbus sucks. It's right next to the worst area in Santa Ana, the developer makes you sign a waiver because of the toxic plume that is left over from El Toro, the traffic in and around the area is horrible, and it has the personality of a Target. The neighborhood rules regarding parking cars on the street are insane.

There are tons better neighborhoods at the same price in Irvine without all the disadvantages that remain conviently contained in prision walls they call Villages of Columbus. You wouldn't want Santa Ana to get mad.

I like how you call me out on the AMT thing, I hand you your ass (because you were wrong), and you claim I don't use facts in your next post. You crack me up.

 

[WestparkRenter_IHB]

Can I get a conventional 30 year fixed on $385K for $1750 a month, including impounding taxes, with $2000 down? Thought so. When I can rent an equivlent property for half what I can buy it for, either my rents are going to skyrocket, or prices are coming down. This much imbalance between rents and ownership costs can't exist. I'm not laying my money on rents skyrocketing.

Assuming that you could get 100% financing (which is becoming less likely these days) I would estimate the monthly cost for principle, interest, insurance, and taxes on a $385k home to be $2,887. So it would have a monthly difference in cost of $1,137. But that isn't accurate since the renter is paying for housing with after-tax dollars. My guess is that renting would costs more than $2,000/mo in this scenario. The current system doesn't allow you to keep the money, it has to either go to the bank or the government. With the government there is very little upside potential on a personal level. [/i]

My brother and his wife purchased a home last year. The addition of the "RE income tax deduction" pushed them over the AMT cap, because your personal deductions (personal exemptions and those for for dependents, state income tax, property tax, and your mortgage interest) are considered "tax shelters". Too many individuals find this out the hard way because they don't do adaquate tax planning. My wife and I are in similar circumstances. If we were to buy a home, the tax advantage would be negative compared to renting unless prices fall off another 40% or more. If we were in Nevada it would be different, but we're in California and we have the highest effective state taxes in the nation.

Every year, AMT renders the standard "Real Estate has Tax Advantages" advice more and more obsolete. Banks will soon reflect this reality and factor thier debt/income ratios (especially in California), allowing less leverage than what they've taken in the past, further depressing house prices.

But I wouldn't expect you to know that because you sell houses and aren't a EA or a CPA.

this statement is just plain wrong. property tax will work in yout favor for AMT, not against it

No, it won't. AMT considers your property tax and mortgage interest expense a "tax shelter".

I know of someone who lives in Bakersfield, makes $38K a year as a waitress, is a single mother of one, and owns a pretty plain condo - who is subject to AMT because they consider her personal exemption, her exemption for her daughter, her property tax exemption, her mortgage exemption, and her California state income tax exemption as a "tax shelter". As you ratchet your incomes up, it gets worse. Nobody cares about AMT untill you get clipped by it. I have been paying my CPA to effectively calculate two returns since 2003 for exactly this reason. I have been able to take some steps to minimize my AMT exposure. If I buy a property it all goes out the window because I am under the AMT caps by the narrowest of margins.

What the columbussquare person wrote USED TO be correct, but isn't anymore, especially in SoCal where incomes and property values are higher than BFE Plano or Bakersfield. Over the past five years, it started to become "well sometimes" and then "more often" and without Congresional action (which isn't coming in light of the deficts we have committed ourselves to over the past 7 1/2 years) will become "totally standard".

I have been paying AMT in the last few years and I have zero mortgage deduction.

 

[flmgrip_IHB]

how about those guys who bought next to the 133, the el toro air base, the pesticide infested former orange fields, the big mountain of waste, the trailer park next door, the major "highways" irvine jeffrey & sand canyon ? prices have dropped equally no matter where you look...

That's not true. They use hardly any pesticides on oranges. They are one of the few crops you can grow organically via IPM. Also, prices have NOT dropped equally. Lets get back to your submission about property taxes and AMT if you would..........

i'm still trying to figure out why you trash talk VoC for no reason...

Bitter renter obv.

did you buy there and you are upside down now ? did you buy a McMansion in WB and now it's worth half ? or are you living next door in the trailer park ?

you have just blant statements not backed by any evidence... but that's the beauty of online forums, everyone can be an expert...

I think the project at Villages of Columbus sucks. It's right next to the worst area in Santa Ana, the developer makes you sign a waiver because of the toxic plume that is left over from El Toro, the traffic in and around the area is horrible, and it has the personality of a Target. The neighborhood rules regarding parking cars on the street are insane.

There are tons better neighborhoods at the same price in Irvine without all the disadvantages that remain conviently contained in prision walls they call Villages of Columbus. You wouldn't want Santa Ana to get mad.

I like how you call me out on the AMT thing, I hand you your ass (because you were wrong), and you claim I don't use facts in your next post. You crack me up.

if you are a renter in the VoC, just move. you seem to know quite a bit about VoC, so i would think you are living there... but who knows, everyone can be whatever they want on here...

i could talk and fight with you about VoC or other neighborhoods, but it won't go anywhere. so i just leave it by that, i have better things to do with my time. i have spoken earlier about irvine/tustin neighborhoods and mentioned thay all have their ups and downs. the toxic problem will be beaten to death because knowone really knows what's true and where and how much... oh well. i don't live close to either one of them, but where i live the smog is more of a concern to me than anything in the ground...

the AMT we can beat to death to... we are both right on that one... you can't prove me wrong, neither can i prove you wrong... taxes (and espc. AMT) are so complicated that you have to look at each personal income to talk about it, and i'm sure no-one around here will do that.

so yes i was wrong to call you wrong on the AMT. consult your tax advisior and see if a mortgage deduction will work in your favor. in some cases it will, in some cases it won't. but to make a blank statement that you can't write off your mortgage because of AMT is wrong. i think we are both right on that and i am too lazy read thru 100's of IRS docs to point out what will and what won't work...

 

[columbussquare.com_IHB]

I like how you call me out on the AMT thing, I hand you your ass (because you were wrong), and you claim I don't use facts in your next post. You crack me up.

That one point wasn't wrong it just isn't always the case due to AMT. Before you begin to say you've handed me my ass why don't you look at the other points and respond to them. Honestly, I don't care if you call me a fool... I've got plenty of results to support my viewpoint. Instead it's foolish to say that income taxes never come into play due to AMT and that make's owning real estate a waste.

I'm beginning to believe that debate is not possible here. As flmgrip said, "columbussquare, you have a lot of good points (regardless of what location or property you are talking about). you however will hit deaf ears around here. it’s essentially a lost case. you will be shown graphs and other studies… most around here just look at the per sqft price, that’s it."

 

[No_Such_Reality_IHB]

OK, then we are all in agreement. Talk to your CPA and make sure you're prepared and not surprised. Then call your senators and representatives to have them fix the AMT. I agree that having two sets of rules makes it difficult to play the game. There are times when you can deduct real estate expenses on your taxes. When that happens, great you just got a bonus. Thank you for bringing attention to an exception that is real and exists for more and more people in the 'middle-class'.

What about the other points including:

Okay, let's talk about them.

- talking about prices as they're impacted by available financing

Financing, going up or going down? Or just plain not available? Let's looks at an example. Say you have $150,000 for down payment and a home you want is $750,000. If JPM is right and homes decrease 40%. How high would the interest rate need to be to go upside down on waiting? Try 14%. And that doesn't include paying 40% less property tax. Frankly, I’ll take the 14% interest and $450,000 home.

- the long-term impacts of Prop. 13

That $7500/yr property tax will grow at 2%. If you buy lower, at $450K, that $4500/yr tax will grow at 2%. There are many impacts to prop13. The two major ones are it creates immobility and a chronic structural tax issue due to the way the tax is distributed.

- the non-cash benefits of being able to do whatever you want with the property (as compared to renting and having a landlord's rules)

Do you have approval from the HOA and architectural board for that? How will it affect your resale value? Do you have the money for that?

- the availability factor (every property is unique; some are more desirable then others)

Tract homes are not unique. Assembly line production is mass production and that is what 95% of the homes in Irvine and OC are.

- proximity to work, church, social activities, etc may influence purchase timing (this also applies to job changes)

Cost of moving will be 6% if you own. If you rent, you can move for the lease break fee. Currently, that’s ½% roughly compared to owning. Can you show me a neighborhood in Irvine that has no rentals available?

- your personal situation is unique (external factors like an unexpected inheritance or parental gift and personal circumstances like having a baby or just getting married might be a catalyst for you and make the difference between one time or another)

You left off winning the lottery. Seriously, having a baby is time to regroup and more closely manage your finances. They add significant expenses. Having a baby, getting married isn’t a reason to buy. Whatever a new couple or new parents likely want to buy is available as a rental.

Or what about my previous post highlights including:

- failing to consider the various business models, and contingency plans, for a property that they are purchasing

Or these points:

- mortgage rates stay flat with a fixed rate loan while rental rates are basically guaranteed to increase over time

Sorry, 1992 to 1998 in OC proved this point wrong.

- if mortgage rates increase then prices will stay flat or drop but affordability even less than it is today

No, see example above.

- leverage is a multiplier for your equity when property values change in value. the more you bigger your DTI (debt-to-equity) the greater the impact (positive & negative)

Positive and negative. Unemployment is 7.7%, the stock market is down almost 20%. Does that bode well for a positive impact? No. Of course, reading the last 300 days worth of IHB blog expose' showing what would has happened with leverage.

Here is my view: Prices (as adjusted for financing) may still drop an additional 5-10% (from previous highs). However, the next 12-24 months could just as easily stay flat or bounce back 5-10%. Given this uncertainty if you're prepared and your budget is solid then it's ok to buy anytime within the next 18 months. There will a lot of people trying to time this market and not everyone will be right.

As IR pointed out today, desire isn’t demand. If your budget is solid, you can always buy. You may over pay. As you previously said, buying is a long term decision. Why rush the decision? Is the market going to be drastically different in twelve months? Not likely. In 24 months? Maybe, but we’ve got an easy 6-12 months to evaluated that issue.

How about some other issues impacting California housing?

What will the chronic and systemic issue in the California state budget and income tax fight do to pricing?

What will California’s corporate environment due to unemployment? That’s a combination of corporate taxes, regulations and thing like worker’s comp?

To me, both create significant uncertainty. Given housing’s illiquid nature, they are added reasons to take a wait and see attitude.

 

[asianinvasian_IHB]

how about those guys who bought next to the 133, the el toro air base, the pesticide infested former orange fields, the big mountain of waste, the trailer park next door, the major "highways" irvine jeffrey & sand canyon ? prices have dropped equally no matter where you look...

That's not true. They use hardly any pesticides on oranges. They are one of the few crops you can grow organically via IPM. Also, prices have NOT dropped equally. Lets get back to your submission about property taxes and AMT if you would..........

i'm still trying to figure out why you trash talk VoC for no reason...

Bitter renter obv.

did you buy there and you are upside down now ? did you buy a McMansion in WB and now it's worth half ? or are you living next door in the trailer park ?

you have just blant statements not backed by any evidence... but that's the beauty of online forums, everyone can be an expert...

I think the project at Villages of Columbus sucks. It's right next to the worst area in Santa Ana, the developer makes you sign a waiver because of the toxic plume that is left over from El Toro, the traffic in and around the area is horrible, and it has the personality of a Target. The neighborhood rules regarding parking cars on the street are insane.

There are tons better neighborhoods at the same price in Irvine without all the disadvantages that remain conviently contained in prision walls they call Villages of Columbus. You wouldn't want Santa Ana to get mad.

I like how you call me out on the AMT thing, I hand you your ass (because you were wrong), and you claim I don't use facts in your next post. You crack me up.

if you are a renter in the VoC, just move. you seem to know quite a bit about VoC, so i would think you are living there... but who knows, everyone can be whatever they want on here...

He is just jealous that he can only rent and will never own. Even in a huge down market he is still priced out. ROFLMAO.

 

[no_vaseline_IHB]

AI:

I know you got a bunch of free time (seeing as you aren't selling anything), but you should put down the bong.

 

[hs_teacher_IHB]

how about those guys who bought next to the 133, the el toro air base, the pesticide infested former orange fields, the big mountain of waste, the trailer park next door, the major "highways" irvine jeffrey & sand canyon ? prices have dropped equally no matter where you look...

I think the project at Villages of Columbus sucks. It's right next to the worst area in Santa Ana, the developer makes you sign a waiver because of the toxic plume that is left over from El Toro, the traffic in and around the area is horrible, and it has the personality of a Target. The neighborhood rules regarding parking cars on the street are insane.

There are tons better neighborhoods at the same price in Irvine without all the disadvantages that remain conviently contained in prision walls they call Villages of Columbus. You wouldn't want Santa Ana to get mad.

I like how you call me out on the AMT thing, I hand you your ass (because you were wrong), and you claim I don't use facts in your next post. You crack me up.

if you are a renter in the VoC, just move. you seem to know quite a bit about VoC, so i would think you are living there... but who knows, everyone can be whatever they want on here...

He is just jealous that he can only rent and will never own. Even in a huge down market he is still priced out. ROFLMAO.

VoC is "next to the worst area in Santa Ana?" "The traffic in and around is horrible"?

Columbus Square is miles away from the worst of Santa Ana. And Columbus Grove is nowhere near Santa Ana.

There's no traffic around Columbus Square - period. And Columbus Grove has your typical Irvine traffic.

As for the street parking, have the rules been enforced yet?

I think that Columbus Square is a nice neighborhood in the middle of nowhere. What kind of an area it will develop into will be based upon the development of the old base. It's conveniently located close to Santa Ana, the heart of Tustin, and Irvine. [Personally, I don't care much for Santa Ana, Tustin, or Irvine.]

Columbus Grove, on the other hand, is nothing more than an extension of Irvine. As a matter of fact, it IS in Irvine.

 

[columbussquare.com_IHB]

As IR pointed out today, desire isn’t demand. If your budget is solid, you can always buy. You may over pay. As you previously said, buying is a long term decision. Why rush the decision? Is the market going to be drastically different in twelve months? Not likely. In 24 months? Maybe, but we’ve got an easy 6-12 months to evaluated that issue.

How about some other issues impacting California housing?

What will the chronic and systemic issue in the California state budget and income tax fight do to pricing?

What will California’s corporate environment due to unemployment? That’s a combination of corporate taxes, regulations and thing like worker’s comp?

To me, both create significant uncertainty. Given housing’s illiquid nature, they are added reasons to take a wait and see attitude.

Is this discussion about a renter becoming a first-time home owner (as their own personal residence) and/or an investor buying their first property in this market? What about the people, which there are many, who own 1+ properties right now? Should they sell into the uncertainty at "fire sale" prices? By not selling a currently owned property the person is saying, "I believe this property to be worth keeping". Are these people fools? Yes, it could have been good to sell 1-3 years ago and re-buy now. But what are you telling the people who didn't?

Do you believe that owning real-estate long-term is for suckers and it's just a market to buy and sell on a short-term basis (no matter if were at the top or bottom)? Yes or No

Maybe it's just me but this thread appears to have switched from "should I buy now?" to "should I buy ever?"

 

[IrvineRenter_IHB]

As IR pointed out today, desire isn’t demand. If your budget is solid, you can always buy. You may over pay. As you previously said, buying is a long term decision. Why rush the decision? Is the market going to be drastically different in twelve months? Not likely. In 24 months? Maybe, but we’ve got an easy 6-12 months to evaluated that issue.

How about some other issues impacting California housing?

What will the chronic and systemic issue in the California state budget and income tax fight do to pricing?

What will California’s corporate environment due to unemployment? That’s a combination of corporate taxes, regulations and thing like worker’s comp?

To me, both create significant uncertainty. Given housing’s illiquid nature, they are added reasons to take a wait and see attitude.

Is this discussion about a renter becoming a first-time home owner (as their own personal residence) and/or an investor buying their first property in this market? What about the people, which there are many, who own 1+ properties right now? Should they sell into the uncertainty at "fire sale" prices? By not selling a currently owned property the person is saying, "I believe this property to be worth keeping". Are these people fools? Yes, it could have been good to sell 1-3 years ago and re-buy now. But what are you telling the people who didn't?

Do you believe that owning real-estate long-term is for suckers and it's just a market to buy and sell on a short-term basis (no matter if were at the top or bottom)? Yes or No

Maybe it's just me but this thread appears to have switched from "should I buy now?" to "should I buy ever?"

There is a good time to buy: when it is cheaper than renting. Other than that, you are speculating on appreciation and most likely going to lose your money. Just watch.

 

[irvine_home_owner_IHB]

There is a good time to buy: when it is cheaper than renting. Other than that, you are speculating on appreciation and most likely going to lose your money. Just watch.

I'm not very good at the number crunching but when was it cheaper to rent? I'm curious.

Another thing I'm curious about is back in the 90s, during our last bottom, how low did new homes in Irvine go below their listing prices? I think the only neighborhoods that were built around the late 80s was Westpark I but it doesn't seem like Zillow can track that far back. I'm wondering because it seems like Woodbury is going to crash hard if the predictions are correct.

 

[ipoplaya_IHB]

Can I get a conventional 30 year fixed on $385K for $1750 a month, including impounding taxes, with $2000 down? Thought so. When I can rent an equivlent property for half what I can buy it for, either my rents are going to skyrocket, or prices are coming down. This much imbalance between rents and ownership costs can't exist. I'm not laying my money on rents skyrocketing.

Assuming that you could get 100% financing (which is becoming less likely these days) I would estimate the monthly cost for principle, interest, insurance, and taxes on a $385k home to be $2,887. So it would have a monthly difference in cost of $1,137. But that isn't accurate since the renter is paying for housing with after-tax dollars. My guess is that renting would costs more than $2,000/mo in this scenario. The current system doesn't allow you to keep the money, it has to either go to the bank or the government. With the government there is very little upside potential on a personal level. [/i]

My brother and his wife purchased a home last year. The addition of the "RE income tax deduction" pushed them over the AMT cap, because your personal deductions (personal exemptions and those for for dependents, state income tax, property tax, and your mortgage interest) are considered "tax shelters". Too many individuals find this out the hard way because they don't do adaquate tax planning. My wife and I are in similar circumstances. If we were to buy a home, the tax advantage would be negative compared to renting unless prices fall off another 40% or more. If we were in Nevada it would be different, but we're in California and we have the highest effective state taxes in the nation.

Every year, AMT renders the standard "Real Estate has Tax Advantages" advice more and more obsolete. Banks will soon reflect this reality and factor thier debt/income ratios (especially in California), allowing less leverage than what they've taken in the past, further depressing house prices.

But I wouldn't expect you to know that because you sell houses and aren't a EA or a CPA.

this statement is just plain wrong. property tax will work in yout favor for AMT, not against it

No, it won't. AMT considers your property tax and mortgage interest expense a "tax shelter".

I know of someone who lives in Bakersfield, makes $38K a year as a waitress, is a single mother of one, and owns a pretty plain condo - who is subject to AMT because they consider her personal exemption, her exemption for her daughter, her property tax exemption, her mortgage exemption, and her California state income tax exemption as a "tax shelter". As you ratchet your incomes up, it gets worse. Nobody cares about AMT untill you get clipped by it. I have been paying my CPA to effectively calculate two returns since 2003 for exactly this reason. I have been able to take some steps to minimize my AMT exposure. If I buy a property it all goes out the window because I am under the AMT caps by the narrowest of margins.

What the columbussquare person wrote USED TO be correct, but isn't anymore, especially in SoCal where incomes and property values are higher than BFE Plano or Bakersfield. Over the past five years, it started to become "well sometimes" and then "more often" and without Congresional action (which isn't coming in light of the deficts we have committed ourselves to over the past 7 1/2 years) will become "totally standard".

What are you talking about No_Vas with regards to AMT? Mortgage interest on your primary home is essentially the only material deduction you get for AMT purposes unless you are in a freak tax situation. Your income pushes you into AMT territory. It's an income tax. How does the deductibility of mortgage interest "push" anyone into AMT?

Not having the property tax deduction could create AMT liability vs. traditional calculation, so AMT can negate the favorably tax consequences of ownership with regards to property tax. It still doesn't "push" you into AMT. You'd still have the same income level, which would be subject to AMT or additional taxation using the regular calc...

 

[ipoplaya_IHB]

So Columbussquare, if one can afford to buy now, but prices are falling and will continue to fall for at least a short amount of time, why buy now? Affordability notwithstanding, why make a purchase of an asset when it will be cheaper next month and even cheaper next year? Would you buy a new car if you knew you could get it for 10% less next year? Most prudent people would milk their existing ride for a few more quarters and wait to get that shiny new car for cheaper later...

While purchase prices have been dropping there is no guarantee that relative prices will go lower. The relative price includes the impact of both financing and taxes.

For example a $500k house could "drop in price" by 1% (or $5,000) but it could actually have an increase in the relative price if the net effect of an interest rate change is greater than one discount point. So an increase in interest rates by say 0.50% (or two discount points in this example) could actually cause relative prices to increase by $5,000 on a $495k purchase (because it cost $10,000 to get the same interest rate as when the price was $500k). The uncertainty in the financial markets, and the failure of multiple banks, could mark the end to the "historically low" interest rates. If rates increase faster than prices drop the relative prices will go up.

Another example, would be where someone pays an additional $10,000 in federal income taxes while saving on rent. Rental rates should be adjusted for taxes to provide an accurate benchmark against the "cost of ownership".

It would appear that recent history renders your relative price argument rather useless Columbus. Heck, I advanced the same thesis on this blog around a year ago I believe. I was very wrong. The good people of the IHB helped me understand that then and I was fortunate enough not to plow nearly $1M into a house. 30-year fixed mortgage rates are essentially the same as they were 12 months ago and 24 months ago. Home prices have declined dramatically and yet mortgage rates are still the same. Rewind two years back, apply the your same conclusions, and tell me how those buyers, who are now underwater made a smart purchase then? Wouldn't they have been much better off financially if they had rent, for less than the cost of ownership likely, while prices declined 20-25% and interest rates remained flat? If you argument didn't make sense then, why does it now?

I agree that we never know where interest rates are headed, but if one is sure of the direction that prices are going (down), it is the smarter path to refrain from purchasing, even if you can afford it on a sustainable basis. In Irvine for sure, renting is still cheaper than owning. I ran calcs like crazy considering the after-tax costs of both, and the home I rent would need to fall around 15% more, assuming current interest rates, to be equivalent to the rental cost.

 

[columbussquare.com_IHB]

There is a good time to buy: when it is cheaper than renting. Other than that, you are speculating on appreciation and most likely going to lose your money. Just watch.

If that's your benchmark then it will be rare for you to find a buying opportunity in the OC. Try South Carolina or Missouri. Demand exceeds supply. Demand is not just from renters but also investors, high net-worth individuals, people who know that ownership is a hedge against increasing housing costs, etc. Value in housing is based on perception of value and the recent transactions that represent that.

 

[no_vaseline_IHB]

There is a good time to buy: when it is cheaper than renting. Other than that, you are speculating on appreciation and most likely going to lose your money. Just watch.

If that's your benchmark then it will be rare for you to find a buying opportunity in the OC. Try South Carolina or Missouri. Demand exceeds supply. Demand is not just from renters but also investors, high net-worth individuals, people who know that ownership is a hedge against increasing housing costs, etc. Value in housing is based on perception of value and the recent transactions that represent that.