Home Ownership

• Smart people are buying real estate - A prominent hedge-fund manager said in a speech last fall:  "If you don't own a home, buy one.  If you own a home, buy another one, and if you own two homes, buy a third and lend your relatives the money to buy a home."  He believes that interest rates and home prices will rise this year, so real estate bargains won't last much longer.
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January 24 2011 - San Diego
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Profile picture for the_country_hick
That hedge fund manager is an idiot. He should know how interest rates affect prices. By last fall do you mean 2009 or 2010? Either way we will be seeing lower house prices in a year.

A $100,000 mortgage at 4.25% costs $491.94
A   $82,000 mortgage at 6.00% costs $491.63
A   $67,000 mortgage at 8.00% costs $491.62
A   $56,000 mortgage at 10.0% costs $491.44

This seems to show that as interest rates rise prices will drop. Most people buy at the top part of what they are approved to buy. If rising interest rates cause lower buying power (IT WILL!) how can I buy that same $100,000 house (for even more money) when my income did not go up much if at all?
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January 24 2011

This is a great time to buy a personal home, because of low mortgage rates and lower home prices.  There are a number of sources reporting that mortgage rates and home prices that are going to remain level.  But, you need to do research and use investment advisors, including a Buyer's Agent, before you decide to invest in real estate.  Also, talk to a mortgage loan officer about the higher mortgage rates and required assets you need to qualify for the purchase of an investment property.

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January 24 2011
Profile picture for sunnyview
Here is an article about this same fund manager John Paulson who urged banks in 2007 to create the sub prime bundled mortgage securities market so that his fund could bet against them.

"Some investors later would argue that Mr. Paulson's actions indirectly led to the creation of additional dangerous CDO investments, resulting in billions of dollars of additional losses for those who owned the CDO slices.."

Who is he trying to manipulate now?
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January 24 2011
This is a fantastic type to buy a home.  The rates are amazing and historical.  I do not know but they could go up.  The list prices are going up in my community of Needham, MA  You cannot build equity in an apartment or take advantage of the interest deduction either.
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January 24 2011
Real Estate is one asset class that should always be part of a well balanced investment portfolio.   
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January 24 2011
Dan "the_country_hick", Just a question for you!!  

Do you believe that real estate is a poor investment and should not be part of one's portfolio?  If a buyer approaches you and is interested in purchasing a home would you tell them that buying a home in 2011 is a poor investment decision?  What is your constructive advice to buyers and sellers out there?
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January 24 2011
Buying a home now is probably THE best investment you could possibly make. Anyone who has wealth is looking to buy right now if they have not already. Real Estate traditionally is the most secure investment you can make. Prices now are as low as they have been in years and the interest rates on these loans is the lowest point in history. If you can comfortably afford to buy now then YES it is a great time to buy.

As always consult a Realtor in your area to make sure that your transaction is handled as professionally as possible.

Brant Didden
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January 24 2011
Profile picture for the_country_hick
Lauren, "Do you believe that real estate is a poor investment and should not be part of one's portfolio?  If a buyer approaches you and is interested in purchasing a home would you tell them that buying a home in 2011 is a poor investment decision?  What is your constructive advice to buyers and sellers out there?"

It all depends. There are a few properties that are worth buying now. I made a call on 2 recently that did not work out. There may be a few areas that are ok to buy in now. But when rent is a lot cheaper than buying and prices are still falling buying now makes no sense.

I honestly expect it will be 2-3 years minimum before it makes economic sense to buy a house for most people under most circumstances.

Until such time as houses are back to their historic pricing levels inflation adjusted I do not see it as a good time to buy. When that happens it will be an ok time to buy long term. It is very likely that house prices will drop below their long term average as bubbles act that way when being corrected.

To answer your question more simply, I do not think buying a house should be looked at as an investment. It is an ongoing long term expenditure that gives you a place to live. Almost any other asset class has outdone housing over the last 50 years of the 20th century. I would not buy anything that was overpriced knowing prices would fall more.
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January 24 2011
rates are going to change.
It's your decision.
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January 25 2011
Profile picture for Bitter Renter Ron
Price Drop Points to Likely Double Dip in Housing Market

"U.S. single-family home prices fell for a fifth straight month in November and could plumb new lows soon, a closely watched survey showed on Tuesday."
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January 25 2011
Profile picture for Gemini.Coast
I made the decision to buy last Fall on a house that is about $5K under value from my mortgage; my lender told me that the coastal town I bought in will definitely make my home more valluable in a few years.  People are buying vacation homes here all the time.  In the meantime, I didn't buy the house for an "investment", but for a place to live in my retirement, until I die.  So unless I win the Lottery, I am happy to live out my remaining life in this house I bought because it's in the area of the country I wanted to retire in and because rentals are higher than my  mortgage payment.
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January 26 2011
Profile picture for sunnyview
Congratulations on your purchase! It is great that your mortgage is cheaper than rent. That will give you great flexibility during retirement no matter what the larger market does. 
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January 26 2011
Gemini, you are the ONLY person on this thread who has made a cogent argument for buying: your mortgage is less than an equivalent rent. So, in a sense, even if prices drop further you are offsetting that loss by what you save on your payment, plus some loan payoff.

It is really a shame that the alleged "experts" can only give such vacuous reasons for buying. If the field truly had professionals in it, they would have professional thinking to back up their positions.

Recently, I had clients walk away from a $60K offer on a small home. They are currently paying $805 a month to rent an inferior place to live. (smaller, no garage, apartment style compared to single family home)  With taxes, insurance, hoa  thrown in, their payment on a 30 year loan would have been in the low $400 range. THAT makes sense to me to buy, by a long shot. Even if the home dropped further, their annual savings of nearly $5000 would cushion them from the loss.

However, making blanket "you should buy" statements in this market, with case-shiller, housingtracker.net, cromford report ALL showing price drops again, and foreclosures ramping up once again, really shows lack of ability to think. At a good price/rent fine buy, but these threads continue to show the very little ability to think many in the field have.
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January 26 2011
Profile picture for Pasadenan
Having Real Estate presently in one's portfolio is entirely different than paying more than intrinsic value of an asset on the whim of some unqualified "investment adviser".  And these agents that try to market themselves as investment advisers not only have a conflict of interest, but they are violating the provisions of their licensing and any association memberships they have.

It is the "advice" of these so called "investment advisers" that created the situation that is causing an additional 1.6 million bankruptcies this year, as well as 1.05 million foreclosures.

U.S. Debt Clock

And no matter how many times these agents state that the interest rates are rising this year; they are not looking at the numbers nor who is controlling the numbers.  The rates will still be around 4.75% for 30 year fixed 6 months from now.  Sure, they may creep up after the FED decides to change policy again, but the fed is controlling the numbers, and the money Fannie and Freddie are loaning is coming from money the government is borrowing at ridiculously low rates.  And though China has reduced the amount of T-bills they are borrowing, there is no indication that they are going to try to cash in their holdings any time in the near future, as to do so would substantially lower the value of that investment!

And rates are closely linked to what is occurring on the stock market, and there is no reason to expect stocks to suddenly shoot up in value presently, so these "buy now" so that "you too can have your home foreclosed on" statements make about as much sense as people encouraging others to bungie jump off a suicide bridge with no experience and no calculations and no risk analysis.
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January 26 2011

Just so everyone knows, interest rates arent linked to the stock market. The Fed raises and lowers interest rates in accordance to how much money is flowing around in the economy. When the recession really kicked in a few years ago and a lot of money was lost, the government dumped $300+ billion into the economy and lowered the prime rate to 0% Now that we are seeing the economy begin to recover (and by economy, I dont mean you and I, I mean GM, Bank of America, Apple, etc) the Fed will raise interest rates to stem inflation and because the banks get their money from the Fed, the cost to loan out money gets passed on to borrowers and home buyers pay more.

Bam. Economics 102.

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February 01 2011
The only thing we can bet on is that interest rates will not stay the same. They will always be moving in one direction or the other. But remember, everyone thought 5% was an insane deal and that there was no way it would get lower. In fact, there are many people right now with ARMs in the 6%s that will actually drop once they get out of the fixed rate time frame. So even though it is scary to think about how those ARMs can increase your payments enough so you can't keep the house, you have some time before they potentially get out of control.
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November 22 2011
Derek:

This thread is nearly a year old and not involved in an active discussion. Please check dates to make sure you aren't dredging up irrelevant threads.
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November 22 2011
Profile picture for Craig1976
A year old but a beauty.  John Paulson's two main funds are down about 35 and 45% this year.  He has been wrong on everything except gold.
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November 22 2011

The rates are at almost an all time low. If you can get approved for financing it would be a great time to buy. Owning a house is one of the pillars of the American Dream and due to recent economic trends it would be a great time to purchase. Especially if inflation rises. Let me know if I can be of any help. Best, Josh.

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November 22 2011
Profile picture for the_country_hick
Joshua, "due to recent economic trends it would be a great time to purchase. Especially if inflation rises."

How is inflation handled to stop it? There is only one way. Raising interest rates on all borrowed money including mortgages. That means as inflation increases and interest rates are getting bigger to battle the inflation house prices will be forced down.

Did you see this from the first post on this thread?
A $100,000 mortgage at 4.25% costs $491.94
A   $82,000 mortgage at 6.00% costs $491.63
A   $67,000 mortgage at 8.00% costs $491.62
A   $56,000 mortgage at 10.0% costs $491.44

Incomes do not rise quickly. That means house prices will be forced down by the same monthly payment changing buying ability based on interest rates simple and supply and demand.
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November 22 2011
 
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